Farm Progress

Study looks at impact of tariffs on Iowa ag exports, as disputes with other countries escalate.

Rod Swoboda 1, Editor, Wallaces Farmer

October 2, 2018

6 Min Read
TARIFF TOLL: A new ISU study examines the economic effects current international trade disruptions are having on Iowa’s economy.

A new study by the Center for Agricultural and Rural Development at Iowa State University shows Iowa farmers could lose up to $2.2 billion due to the escalating trade wars the U.S. is having with China, Canada and other nations.

The study also looks at how those losses would affect the state’s entire economy, reducing tax revenue, jobs and manufacturing.

The study examines different scenarios. Overall, it shows losses to Iowa’s gross state product in a range of $1 billion to $2 billion. Iowa’s 2017 GSP was $190 billion. The U.S. Census Bureau estimates Iowa’s export value for 2017 at $13.4 billion, or 7% of Iowa’s GSP.

John Crespi, interim director of the center and professor of economics, says the estimated loss of GSP will be difficult, though Iowa farmers have faced worse.

“The farm crisis of the 1980s was much worse than what we are seeing today because it came at a time of very high interest rates and record farm debt,” he says. “An interesting déjà vu with the farm crisis of the 1980s is that much of the impact was linked to policies set in Washington.”

Tariffs affect commodity prices
The trade disruptions in the current skirmish will be noticeable to Iowa consumers. “Iowans should see prices go lower on some items that once were exported: pork, for example,” he says. “But other prices will go higher. A tariff is a tax. One thing economists always stress is that whenever you tax something, only some of that tax will be borne by the person selling the product. American consumers are going to be paying some of that tax as well.”

Crespi says while the effect the tariffs will have on farmers isn’t easy to predict, commodity prices will be the first place they see it.

The study calculated that Iowa’s soybean industry could lose between $159 million and $891 million. The state’s corn industry may lose between $90 million and $579 million. Iowa’s hog industry faces losing $558 million to $955 million. Ethanol producers are estimated to lose $105 million.

“For farmers, the obvious question is where and how much of your product will you sell this year and next, and for what price?” Crespi asks. “But the harder question is what happens in two, three or 10 years if the trade wars continue? You could find that the U.S. loses so much market share that a decade from now, even if you get rid of the tariffs, the U.S. may be a smaller player.”

Long-term reduction in market share
What’s the possibility Iowa or the U.S. could be looking at a long-term reduction in world market share for ag commodities? The study notes two examples — the Russian grain embargo in the 1980s and a 2009 dispute with China.

In the 1980s, the U.S. enacted a grain embargo against the former Soviet Union. Farmers in the U.S. felt the sting of falling commodity prices and watched as European farmers gained much of the trade American farmers lost. In 2009, a trade dispute with China resulted in the U.S. losing a significant portion of its China poultry trade to Brazil and the European Union.

Today, soybean growers are already facing a similar situation. For decades, U.S. soybeans set the price for the crop grown in other countries. Currently, U.S. soybeans are selling on the world market at a discount to Brazilian soybeans.

“History has shown that the world’s farmers don’t just sit back and wait for countries to settle their differences. They ring the doorbell and offer their products,” Crespi says. “The president of the Brazilian grain growers association recently met with Chinese traders, and the Chinese embassy in Brazil said discussing a Brazil-China futures contract has merit.”

Tariffs take toll in other ways
While Iowa farmers are facing a difficult situation, trade disruptions aren’t uncommon. “American farmers are always on the frontlines of trade wars,” Crespi says.

Lost agricultural revenue isn’t the only way trade disputes are taking a toll on Iowa. Revenue losses can translate into additional lost labor income and lost tax revenue.

The study estimates that labor income declines to the corn, soybean and hog industries may range from $245 million to $484 million, enough income to support 9,300 to 12,300 jobs.

Total labor income and tax revenue losses in Iowa will depend on the available federal offsets and how they are applied. The study looks at two types of federal offsets: USDA direct payments to farmers and government spending of collected tariffs.

“The USDA payments are relatively easy to account for,” Crespi says. “The second is harder to see directly because it has to do with what the federal government will do with the tariffs it collects. That’s harder to measure because these are gains to the federal budget, so ultimately, it’s up to Congress what happens to them.”

Effect on Iowa’s total economy
The study estimates Iowa tax revenue losses (personal income and sales taxes) may range from $111 million to $146 million. Federal offsets could reduce the tax losses to $75 million to $110 million.

“Could the rest of the economy grow substantially and offset these losses? It’s possible,” Crespi says. “But don’t forget recessions will happen again. One hundred million dollars might seem affordable when times are good, but when times are bad, that’s when the tough decisions have to be made.”

The ISU study is available here.


Will USDA trade aid program help?

The tariff war between the U.S. and China and other countries could cost Iowa’s economy up to $2 billion. Pork producers in Iowa likely will be the biggest ag losers. They stand to lose as much as $911 million, says a new ISU study.

Soybean growers could lose up to $520 million; corn growers, $337 million; and dairy, $20 million. Tariffs could cost Iowa ethanol producers $105 million.

Iowa is the nation’s second-largest agricultural exporter, after California, exporting close to $11 billion in ag products in 2016. Iowa leads the nation in corn, soybean and pork exports. The same as with the U.S., Iowa’s leading ag export customers are Canada, China, Mexico, the European Union and Japan.

Iowa farmers are expected to get $550 million in the first round of direct aid from USDA’s Market Facilitation Program (MFP), to help offset some of the current tariff-induced export loss.

Kirk Leeds, Iowa Soybean Association CEO, isn’t surprised by the findings of the ISU study. He says the $1.65 per bushel USDA is offering soybean farmers who sign up for MFP will help farmers but doesn’t come close to the amount of bailout farmers would get from the U.S. settling the trade war with China and other countries.

“The tariffs and counter-tariffs we are enduring in this trade war are having a real impact on U.S. and Iowa farmers,” Leeds says.

Pat McGonegle, Iowa Pork Producers Association CEO, says his industry is also asking for a quick resolution to the tariff war. “For pig farmers, this is a very difficult time. We are asking the Trump administration to resolve these trade disputes and for sure to get the Mexico market opened as quickly as possible.”

Tough trade talk earlier this year led to tit-for-tat tariffs on U.S. exports to China, Mexico, Canada and the European Union. Talks between the U.S. and China have broken down, with President Donald Trump in late September announcing U.S. tariffs on $200 billion more of Chinese goods, pushing the total to $250 billion.

Progress is being made with Mexico and Canada, however. It was announced Oct.1 that Canada has agreed to join the U.S. and Mexico in a trade agreement to replace the North American Free Trade Agreement. The new agreement will be called the U.S.-Mexico-Canada Agreement.

The text of this new agreement has been submitted to Congress for approval and is expected to be signed by all three countries by end of November.


About the Author(s)

Rod Swoboda 1

Editor, Wallaces Farmer

Rod, who has been a member of the editorial staff of Wallaces Farmer magazine since 1976, was appointed editor of the magazine in April 2003. He is widely recognized around the state, especially for his articles on crop production and soil conservation topics, and has won several writing awards, in addition to honors from farm, commodity and conservation organizations.

"As only the tenth person to hold the position of Wallaces Farmer editor in the past 100 years, I take seriously my responsibility to provide readers with timely articles useful to them in their farming operations," Rod says.

Raised on a farm that is still owned and operated by his family, Rod enjoys writing and interviewing farmers and others involved in agriculture, as well as planning and editing the magazine. You can also find Rod at other Farm Progress Company activities where he has responsibilities associated with the magazine, including hosting the Farm Progress Show, Farm Progress Hay Expo and the Iowa Master Farmer program.

A University of Illinois grad with a Bachelors of Science degree in agriculture (ag journalism major), Rod joined Wallaces Farmer after working several years in Washington D.C. as a writer for Farm Business Incorporated.

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