Farm Sector Fears Large Losses From Mounting Trade Conflict
The Farm Belt will get walloped if China retaliates in equal measure against Washington’s $50 billion in announced tariffs on Chinese goods, said economists at Midwestern universities. Ohio State researchers said farmers in the Buckeye State could see a 50% drop in farm income, while Iowa State’s Chad Hart said producers in the Hawkeye State could lose up to $624 million this year, depending on how long the tariffs are in place and if other customers are found.
China is the largest market for U.S. ag exports, which generate 20¢ of each $1 in farm income. The Trump administration announced 25% tariffs on $50 billion of high-tech Chinese products, with duties coming into effect on July 6 for a tranche of $34 billion in goods. Beijing responded with a target list of the same size, also taking effect on July 6 and which included soybeans, salmon, orange juice, and whiskey along with electric cars.
Analysts say China picks trade targets for maximum political impact while minimizing discomfort to its citizens. Soybeans are, by far, the largest U.S. farm export to China, but Brazil is its leading supplier. Along with the tariffs, the Chinese Commerce Ministry also said a recent offer to buy billions more of U.S. goods, including farm exports, was off the table.
“As a soy grower, I depend on trade with China,” said Kentucky farmer Davie Stephens, vice president of the American Soybean Association. “China imports roughly 60% of U.S. soybean exports, representing nearly one in three rows of harvested soybeans. This is a vital and robust market that soy growers have spent over 40 years building and, frankly, it’s not a market U.S. soybean farmers can afford to lose.”
In the run-up to the White House announcement on Friday, the National Corn Growers Association pointed to the outcome of the U.S. grain embargo of the Soviet Union in 1980. It prompted larger Soviet grain production and damaged the U.S. reputation as a reliable supply on the global market.
“Our organization grows increasingly concerned that this administration does not have a plan to ensure family farmers and ranchers aren’t thrown under the bus,” said the National Farmers Union, the second-largest U.S. farm group. The NFU said it supports the administration in trying to reduce the U.S. trade deficit. “The administration must work with Congress to develop a comprehensive solution to ensure family farmers can continue to provide for the nation. Fortunately, the current farm bill drafts moving through Congress present an opportunity for the administration to do just that.”
Agriculture Secretary Sonny Perdue said “I think it’s way too early” for the administration to implement a bailout. “If we determine legitimate and lasting harm…then we are prepared to take action,” said Perdue during a teleconference on Friday. When tensions flared in April, the administration said it would protect farmers from unfair action by China. Up to $15 billion would be available, it was rumored. Perdue has said it is premature to discuss how assistance would be provided.
Two Ohio State University economists said state soybean exports could fall by $241 million a year if China follows through with its 25% tariff on soybeans. Farm income could drop by 59% if corn and soybeans are hit with the tariff, they said, based on average production and projected price declines. “There are farmers struggling across the state. If the proposed tariffs go into effect, we’re going to have farmers who will have to exit the industry,” said Ben Brown, manager of OSU’s farm management program.
“It (tariffs) will slow down the market,” Iowa State economist Hart told the Des Moines Register. “Even with the tariffs in place, we will ship a lot of soybeans to China. It just won’t be nearly the amount we did before. (China) is likely to still be our largest market even with these tariffs in place.” The American Soybean Association pointed to an estimate that soybean sales to China could drop by 65% with a 25% tariff on them.
The export-promoting U.S. Grains Council said it would stay “closely engaged” with China “but we will also redouble our efforts in the rest of the world to expand demand.” A tariff barrier to U.S. exports “means other partners will take our place.”
At the Brookings Institution, analyst Ryan Hass said, “Given the intertwined nature of the U.S. and Chinese economies, there aren’t many ways for the United States to punch China without bruising itself in the process. China is the third-largest (and fastest-growing) market for U.S. exports. Trade and investment with China support roughly 2.6 million American jobs.”
In late May, the USDA estimated U.S. farm exports of $142.5 billion this fiscal year, the second-highest tally ever.