U.S. tariffs on more than 800 Chinese products went into effect July 6. Chinese officials retaliated immediately saying China is now forced to make a “necessary counterattack” on U.S. ag products. Products targeted by China include soybeans, corn, pork, beef and poultry.
Continued escalation of trade tensions between the U.S. and China is having a real impact on Iowa farmers and businesses. Farmers have seen a significant drop in prices for both crops and livestock as the tariff talk heated up in recent months and retaliatory tariffs by China are now creating even more stress and uncertainty during what was already a difficult time for the ag economy.
“There are real issues in our trade relationship with China that need to be addressed, but Iowa agriculture cannot continue to bear the brunt of the retaliation from our trading partners,” says Iowa Secretary of Agriculture Mike Naig. He says the Trump administration “needs to move forward quickly to provide market certainty for farmers for this year and as they plan ahead for 2019.”
Iowa officials push for end to tariffs
Naig says he will continue to work with Iowa Gov. Kim Reynolds and Iowa’s congressional delegation “to urge the U.S. trade negotiators to work for a quick resolution of the current disputes with China, as well as our NAFTA trading partners: Canada and Mexico.”
He adds, “We also need to continue to develop new export markets for Iowa and U.S. products. And we need to keep reminding the administration to protect our critically important renewable fuels market by maintaining the ethanol and biodiesel levels required by law in the Renewable Fuel Standard and to get EPA to allow for the year-round sale of E15.”
Soybean growers to be hit hardest
President Donald Trump, who ran for the White House on a vow to force China and other nations to reform their trade policies, has insisted that slapping tariffs on products the U.S. imports from China is the best strategy to accomplish that goal. China has now responded by putting tariffs on products the U.S. sells to China. After months of asking the Trump administration for an alternative to the tariff plan, U.S. soybean farmers will now be hit hardest by China’s retaliatory tariff.
“We currently have a soft market for soybeans, already declining prices, and now China’s retaliation against President Trump’s 25% tariffs on $34 billion worth of Chinese goods, which took effect on July 6,” notes John Heisdorffer, a soybean grower from Keota in southeast Iowa and president of the American Soybean Association.
Soybean farmers, whose crop represents 41% of the value of products on China’s tariff list, will feel the full effect.
The value of U.S. soybean exports to China has grown 26-fold in 10 years, from $414 million in 1996 to $14 billion in 2017. Since talk of the tariffs began back in March, U.S. soybean prices have dropped more than $2 per bushel.
China imports 31% of U.S. soybean crop
“Soybeans are the top ag export for the U.S. and China is the top market for purchasing our soybeans,” says Heisdorffer. “The math is simple. You tax soybean exports at 25%, and you have serious damage to U.S. farmers.”
Soy growers rely heavily on exports to China: In 2017, China imported 31% of U.S. production, equal to 60% of total U.S soy exports and nearly one in every three rows of harvested beans. Over the next 10 years, Chinese demand for soybeans is expected to account for most of the growth in global soybean trade, which underscores the importance of this market for future U.S. soybean sales.
Which side will blink first?
When the possibility of tariffs first arose, ASA asked Trump to consider using other policies for reducing the U.S. trade deficit with China. Next, ASA organized a fly-in to urge Congress to encourage the administration to rethink the tariffs. Finally, in a last-ditch social media effort last week, individual soybean farmers who will be directly affected by the trade conflict attached their photographs to statements appealing directly to Trump and his advisers.
Trump’s trade team insists that the U.S. wields a decisive edge over China in a trade war: China sells much more to America ($524 billion last year) than Americans sell to China ($188 billion) so China is more vulnerable to tariffs. But trade analysts are skeptical that Beijing will blink first. The question is which side has more political tolerance for pain.
ISA fearful of trade war with China
The 22 farmers who are directors of the Iowa Soybean Association released the following statement July 6 in response to the escalating trade war with China:
“The U.S. soybean industry’s worst fears are coming to pass today with the implementation of tariffs on Chinese imports. This aggressive action positions Iowa and America’s soybean farmers directly in the crosshairs of a full-scale, multinational trade war if China, as it has promised, imposes tariffs on U.S. soybean imports.
“Short- and long-term consequences are significant. Soybean prices in the U.S. are already far below cost of production and will continue to erode, placing additional pressure on farm families who have already experienced a nearly $2-per-bushel decline since March.
“Long term, a full-blown trade war risks entrenching anti-American sentiment in a country that consumes nearly 60% of global soybean trade and about one of every three rows of U.S. soybean production. It will incentivize additional trading partners, including Canada, Mexico and the European Union, to do business absent the United States. Our competitors are working diligently to grow their capabilities and overcome any shortcomings, both logistically and economically. This is of great concern to the nearly 42,000 Iowa soybean farmers who derive their livelihood from an industry built on the ability to do business internationally.
“There are winners and losers in every trade war. The soybean industry is a loser if we become a residual, rather than primary, supplier of soybeans to China. Iowa is disproportionately impacted because of the tremendous volume of soybeans produced here and the need to move our product to international customers.
“Iowa farmers are resilient, resourceful and accustomed to dealing with situations out of their control. We recognize and fully appreciate the legitimate issues involving U.S. and Chinese trade relations. As we prepare to harvest another substantial soybean crop this fall, we urge U.S. and China officials to engage in full and transparent dialogue to resolve these issues quickly. Time is of the essence.”
Quick facts on what’s at stake:
• U.S. soybean prices are already $1.65 below the average global soybean price.
• A Purdue University study says a 25% tariff imposed by China on U.S. soybean imports would result in a 65% decline in soybean exports to China. Total U.S. soy exports would drop by 37% while U.S. soybean production would decline 15%.
• Chad Hart, Iowa State University Extension economist, estimates Iowa soybean farmers stand to lose up to $624 million due to higher tariffs implemented by China.
• Iowa soybean farmers produced $5.2 billion worth of soybeans in 2017 on production of nearly 563 million bushels.
• Soybeans are America’s leading ag export, with sales of $27 billion last year.
• China is the top market for U.S. soybeans, accounting for $12 billion to $14 billion in sales in 2017.
• A total of 51% of the U.S. soybean crop is exported annually.
• As of July 5, soybean futures prices were trading at the lowest they had since September 2008.