China’s growing list of tariffs aimed at U.S. exports could be enough to sink farmers in Iowa and other states, as they struggle to survive a five-year decline in the farm economy, mainly due to big crops and low prices.

In response to tariffs the U.S. government put on imports of steel and aluminum, the Chinese government on April 2 slapped a 25% tariff on pork, ethanol and dozens of other products the U.S. exports to China.

On April 3, the U.S. released a list of Chinese exports — semiconductors, cars, machine tools, etc. — worth about $50 billion, that would be hit with a 25% tariff. The Trump administration said the move is meant to punish China for stealing U.S. technology and violating intellectual property rights, and to narrow the trade deficit, which was $375 billion in 2017.

On April 4, China retaliated by expanding its list, saying it will place a 25% tariff on U.S. soybeans, beef and 100 other products. Chinese officials haven’t set a date for when they will enact the tariffs for the expanded list. They say that depends on tariff negotiations with the Trump administration.

“We don’t need a trade war,” says John Heisdorffer, a southeast Iowa farmer and president of the American Soybean Association. “Farmers are feeling a real financial pinch now, with continued low crop prices. If we can’t get these commodity prices up, we are going to start losing farmers.”

ASA and other farm organizations are calling on the White House to reconsider the U.S. tariffs that led to this retaliation by China.

Bad timing for trade war
This year U.S. farm income is forecast by USDA to be half of what it was in 2013. China’s latest tariff announcement, the one on April 4 on the $50 billion of U.S. products, came hours after President Donald Trump announced U.S. tariffs on a similar number of Chinese products. ASA, looking at soybeans alone, says the U.S. economy could lose $3 billion annually within a couple years, due to lost export markets.

With a population of more than 1.4 billion people, China imports about 60% of global soybean production. About 40% of China’s soybean imports come from the U.S. and were valued at $14 billion last year. If China follows through with its proposed soybean tariff, Heisdorffer and other soybean leaders fear Brazil and other countries soon would take advantage of the 25% tariff to undercut U.S. producers.

Some economists fear the U.S. could lose 40% of its global market for soybeans, which would mean repercussions for the entire U.S. economy.

China, U.S. trade issues aren’t new
China’s proposed 25% tariff on U.S. soybean imports was anticipated by the industry, says Kirk Leeds, chief executive of the Iowa Soybean Association. China’s leaders are politically astute and had promised to respond in-kind to tariffs announced by the White House. China has followed through on that promise.

Trade issues between China and the U.S. are not new. “Iowa farmers understand there are legitimate issues needing resolution, particularly those involving intellectual property rights,” Leeds says. “We appreciate the importance of these matters and encourage additional dialogue between the two countries to resolve them.” 

While the announced tariff on U.S. soybeans hasn’t been imposed yet, it is a target. That said, China’s proposed tariff on U.S. soybeans is disconcerting for Iowa farmers poised to plant this year’s crop. Short term, the volley of proposed tariffs between the countries will negatively impact soybean prices. Long term, an ongoing trade dispute with China risks stoking anti-Americanism sentiment that could jeopardize the strength of trade relations between the two countries — relationships that have taken U.S. soybean farmers nearly 35 years to develop.

Both sides stand to lose
China and the U.S. are major players in the global soybean market. Both stand to lose if this trade dispute escalates.

ISA President Bill Shipley in March led an ISA delegation to China, which included Leeds and others. The trade dispute and possible tariffs were a hot topic. Neither Chinese buyers nor farmers want tariffs enacted. “They want to continue doing business,” Shipley says. “They are just as nervous as we are. They want an uninterrupted supply of good quality soybeans.”

The latest U.S. tariffs announced on Chinese exports into the U.S. won’t go into effect until sometime in June. Shipley says he hopes cooler heads will prevail and a settlement can be reached to stop the tariffs from being enacted. Trade negotiations are going on between U.S. and Chinese officials.

Tariff on soybeans compound pain
If the talks fail and a 25% soybean tariff is enacted by China, Shipley says it will compound the pain of already low commodity prices. A Purdue University study predicts a 30% tariff would reduce U.S. soybean exports to China by 71% and lower the prices U.S. farmers receive by 5.2%.

With tariffs on steel and aluminum imports, U.S. farm equipment manufacturers will pay more for steel and aluminum. “The tariffs will affect my bottom line and the companies I do business with like Sukup Manufacturing and John Deere, due to higher manufacturing costs,” Shipley says. “Equipment will cost more, and soybean prices will be lower, reducing profitability.”

Leeds adds, “It is our hope that U.S. and Chinese officials will quickly transition from politics and posturing to resolving this escalating trade dispute for the benefit of American farmers and our Chinese customers.”

Ethanol, pork, beef, corn also on China’s list

China’s recent announcement of retaliatory tariffs on U.S. ag products is a concern, says Mike Naig, Iowa secretary of agriculture. “Tariffs on pork products and ethanol went into effect April 2, and China has announced additional duties on soybeans, corn and beef that could take effect in a couple of months,” he notes.

While there are real challenges in the U.S. trade relationship with China, Iowa agriculture stands to face a disproportionally negative impact, as a result of efforts to correct these issues. “The new trade barriers create additional hurdles to farmer profitability that has already been in decline for the last four years,” Naig says. “As Iowa farmers get ready to enter the fields and plant their crops this spring, the recent actions and tariff announcements add to the economic uncertainty being felt across the state.”

He adds, “The potential impact of these trade barriers on Iowa agriculture is dramatic. The U.S. exports $1.16 billion worth of pork products to China per year. One quarter of our state’s soybean crop goes to China. Our office has been coordinating with the governor’s office and been in contact with USDA and the Iowa congressional delegation to urge a swift resolution to this China tariff and trade policy issue.”