The US imposed a 241% tariff on Iranian pistachios nearly 40 years ago.The tariff allowed early California farmers to gain a foothold in the market.America now provides 60% of the world's pistachios.

When the United States slapped a 241% tariff on Iranian pistachios nearly 40 years ago, it set the stage for one of America's biggest agricultural success stories.

The trade barrier opened the door for small California farmers to build a new homegrown industry. Today, California supplies more than 60% of the world's pistachios, a significant portion of the global pistachio market that's worth an estimated $5.6 billion and projected to grow to over $7 billion by 2030.

The pistachio precedent is an example where tariffs initially worked as intended — protecting an infant industry long enough for it to stand on its own.

However, once the pistachio industry matured, consolidation followed. Only a handful of pistachio processors in California now dominate production.

The same risk looms today for American business owners hoping Trump's tariffs will level the playing field.

America's pistachio boom might have never happened

In the mid-20th century, Iran dominated global pistachio production, exporting millions of pounds each year, including to America.

By comparison, America's "industry in pistachios was almost literally non-existent," said Bob Keenan, owner of Keenan Farms in California, one of the oldest pistachio processors in the US.

Today, Iran supplies less than a quarter of the global market. That shift and America's pistachio boom might have never happened, however, if it weren't for a key moment in history.

In 1979, during the Iranian Revolution, militants stormed the US Embassy in Tehran and held 52 Americans hostage. In response, Washington froze Iranian assets and restricted imports, including pistachios.

Practically overnight, a hole opened in the market for American farmers, and California growers moved quickly to fill it. A lot of like-minded farmers invested their time and resources into building an industry, Keenan told Business Insider's Olivia Nemec.

In 1980, the Sunshine State produced about 27 million pounds of pistachios. That's small by today's standards, but a huge leap from its harvest just four years earlier of 1.5 million pounds.

When the hostages were released in 1981, the embargo was lifted, and Iranian pistachios began flowing back into the US. By then, however, American growers weren't about to let their foothold in the market slip away.

American growers, including Keenan Farms, accused Iran of dumping, or selling below cost to drive out competition. The US International Trade Commission launched an investigation and found that Iran was selling nuts for less than it cost to grow them, a sign that dumping was indeed at play.

California growers ultimately won their case, and in 1986, the US imposed a 241% anti-dumping tariff on Iranian pistachios. "And that helped our industry grow and become profitable," said Keenan, whose business expanded from handling and processing nuts on 100 acres in the '70s to 20,000 today across multiple pistachio growers in the state.

Iran continued exporting to Europe and Asia, but its access to the US was limited. Subsequent sanctions, including the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, prohibited nearly all imports of Iranian goods, which effectively ended any remaining legal trade in pistachios between the two countries.

Drought threatens the pistachio industry, especially small businesses

As America's pistachio industry matured, small growers laid the groundwork for large companies to scale it. Now, small companies are struggling.

Rebecca Kaser of Avellar-Moore Farms, a small family-run operation in California's Central Valley, said they've had to adapt as droughts worsen and water becomes scarcer. "We're kind of at the mercy of the elements," she said.

Pistachio trees thrive in hot, arid climates, but a mature orchard typically needs over a million gallons of water per acre each year in order to produce any nuts for profit, making them vulnerable in times of drought.

Moreover, pistachios are among the most expensive nuts to grow and can cost about $20,000 per acre before a single nut is produced, and trees can take six years to yield a harvest — twice as long as almond trees.

Kaser and other small farmers have struggled under California's Sustainable Groundwater Management Act of 2014, which limits pumping groundwater from depleted aquifers.

Kaser says she sees the act's importance. "It was a piece of legislation that was helping us become better stewards of the land. And that's at the heart of what farming is."

However, it has also meant that Avellar-Moore Farms has had to stop planting on some of its land, a process called fallowing, due to insufficient water.

"We fallowed out over 60% of our farm so that we'd be able to have the water in order to irrigate our plantings," Kaser said. Experts warn that up to 900,000 acres of farmland could go out of production by 2040, disproportionately hurting smaller operations without access to private water banks.

Meanwhile, the world's largest pistachio producer — The Wonderful Company, owned by billionaires Stewart and Lynda Resnick — continues to expand thanks to a water bank that the Resnicks own a significant portion of the rights to. The bank relies on surface water, not groundwater, and is less affected by the Groundwater Management Act.

Wonderful Orchards now spans 60,000 acres, roughly four times the size of Manhattan. And its trees produce 20% to 40% more nuts than average with the same amount of water due to selective cloning of its highest-yield crops, Rob Yraceburu, president of Wonderful Orchards, told BI.

That scale gives Wonderful a distinct advantage.