Iowa’s ag and political leaders continue to express concern over a possible trade war between the world’s two largest economies. The Trump administration and the Chinese government lobbed tariff threats back and forth this spring, and it’s impossible to predict whether either side will carry through. But the clock is ticking.
Earlier this year, the U.S. imposed tariffs on imports of steel and aluminum in response to concerns about China’s violation of trade agreements and other unfair practices, including intellectual property theft. China responded, slapping an additional 25% tariff on U.S. pork products entering China and an additional 15% tariff on U.S. ethanol. The U.S. fired back with a list of 1,300 products that could be subjected to tariffs, prompting China to issue proposed tariffs on U.S. soybeans and beef, among other products.
Exports of the major farm commodities Iowa produces (soybeans, pork, beef, ethanol, corn) are caught in the crossfire, as trade tensions between the two countries have ramped up.
Trade dispute adds to uncertainty
The proposed U.S. tariffs on Chinese goods are going through an approval process, including a public comment period and a hearing. That process is scheduled to conclude in late May, and the Trump administration would then have up to three weeks to determine whether to go ahead and implement the proposed tariffs.
It’s impossible to predict what China will do, says Mike Naig, Iowa secretary of agriculture. “But these new trade barriers, if enacted, will create additional hurdles to farmer profitability that has already been in decline the last four years,” he says. “As Iowa farmers plant their crops this spring, the recent tariff actions and possible additional increases add to the economic uncertainty being felt across the state.”
Holding a press conference with the state’s farm leaders recently, Iowa Gov. Kim Reynolds made this point: “No one wins a trade war. While some disruption may be necessary and part of the negotiation process, we know this absolutely should not be done on the backs of our farmers.”
Worries expressed by Reynolds and others were delivered in an April meeting at the White House. She says the meeting was productive. Reynolds and other farm-state officials emphasized the importance of trade with China, as well as finalizing North American Free Trade Agreement negotiations, expanding the use of E15 ethanol year-round in the U.S. and reconsidering the Trans-Pacific Partnership trade agreement.
“The president listened to our concerns,” Reynolds says. “He understands that for our farmers to be successful, we need to grow, not shrink, our markets.”
Other sectors of economy affected
The impact of trade disruptions would reach beyond farmers and include manufacturers of farm machinery and other sectors of Iowa’s economy. “Iowa has benefited from our long-standing relationship with China by establishing new and expanded opportunities for not only our ag commodities and feed ingredients, but our agricultural equipment, as well,” Reynolds says.
Reynolds has shared her concerns with U.S. Agriculture Secretary Sonny Perdue and former Iowa Gov. Terry Branstad, now U.S. ambassador to China. The Trump administration is working on a plan to lessen the impact of market disruptions from tariffs on farmers. Details are yet to be released.
Restrictions on farm financial aid were lifted in the recently passed federal budget bill, but U.S. congressional leaders say any relief package would be difficult to implement in an equitable way for farmers across the country.
Farmers want market access
Farmers simply want access to markets and the opportunity to sell their products on a level playing field, says Gregg Hora, president of the Iowa Pork Producers Association, who farms in Webster County. “We hope to continue to have open relationships with global trading partners so we can continue to sell our excess pork products and soybeans overseas.”
Farmers realize there are legitimate trade issues with China that need to be corrected, such as theft of intellectual property, says Bill Shipley, an Adams County farmer and president of the Iowa Soybean Association. “But we are hopeful this dispute can be resolved without targeting food and agriculture.”
Shipley has invited President Donald Trump to visit his farm during planting season to see firsthand how trade worries are affecting farmers. “China’s proposal to add tariffs to U.S. soybeans adds more uncertainty to the financial situation our farmers face right now,” he says. “If allowed to take hold, the tariffs could jeopardize the ability of U.S. farmers to do business with China for generations to come. Trade wars are a lose-lose, never a win-win.”
For an analysis of the key products involved in the U.S.-China trade dispute, read the article on the ISU Ag Decision Maker website.
Tariff threat has global implications
If China carries through on its threat to put a 25% tariff on soybean imports from the U.S., it would likely have significant and lasting impacts on U.S. farmers, on crop choices around the world and on the soybean processing industry, according to a Rabobank study.
Other important Iowa ag exports are on China’s tariff list, but soybeans are the biggest target, says Sterling Liddell, vice president of research at Rabobank. Last year the U.S. exported $14 billion worth of soybeans to China, nearly three-fourths of the total value of all U.S. ag exports to China. One of every four rows of soybeans grown in the U.S. ends up in China.
If the U.S. and China don’t solve this dispute, and import duties are imposed, the Rabobank analysis projects lower soybean prices for farmers in Iowa and the U.S., a shift in corn and soybean plantings, and potentially lower corn prices.
Brazil, Argentina and Ukraine would likely plant more soybeans to fill the increased demand from China. Also, demand would increase for competing oilseeds, such as canola, as China would reduce its dependence on soybean meal in livestock rations.
Soybean processors and crushing capacity in the U.S. and worldwide would be affected. In the U.S., more beans would be processed to make feed, as fewer would be exported.
China’s tariffs would make U.S. soybeans significantly more expensive for Chinese importers, and over time would make the crop less attractive to U.S. farmers. It could reverse the recent gains in U.S. soybean acreage, as more corn would be planted here. However, having additional corn acres without additional demand would tend to drive down corn prices.
“We don’t have the big demand driver that we had a decade ago, when ethanol use for corn was really climbing,” Liddell says.
Farmers in Iowa and all over the U.S. would be better off if China and the U.S. would settle these current trade differences, Liddell says, and if no additional tariffs were imposed on soybeans and other U.S. ag exports to China. “Hopefully, agriculture will not be used as a pawn in these trade negotiations, which really aren’t even about agriculture.”