Daily Times

American farmers watched warily this week, as a tit-for-tat trade fight between the world’s top two economic superpowers played out, threatening lucrative agricultural exports including soybeans.

If China follows through on its plan to impose a 25 percent tariff on soybeans, it would make global suppliers like Brazil even more attractive to Chinese buyers. It also would encourage those suppliers to add more acres of soybeans, and then negatively impact the price American farmers can get for their crop.

“Growing trade disputes have placed farmers and ranchers in a precarious position,” Zippy Duvall, a Georgia farmer and president of the American Farm Bureau Federation said in a statement Friday. “We have bills to pay and debts we must settle, and cannot afford to lose any market, much less one as important as China’s.”

Earlier in the week, the Chinese announced retaliatory tariffs of up to 25 percent on 106 American goods, including soybeans, cotton, corn, sorghum, wheat and beef. It came on the heels of the Trump administration proposing duties on more than 1,300 imported products in China’s machinery, electronics, aerospace and robotics sectors.

President Donald Trump then suggested an additional $100 billion in tariffs could come on top of what already was announced, and aBeijing official responded that China too was prepared to add more tariffs on US goods. On Saturday, Trump insisted that the US-China trade imbalance was not sustainable.

“A trade war is not good for us,” said Art Barnaby, an agricultural economics professor at Kansas State University. “There’s a lot of uncertainty as to where this is going to end up.”

Targeting soybeans

The lion’s share of the US agribusiness trade to China involves soybeans, which are grown in many farm states where Trump received strong support during the 2016 presidential election. Top soybean growing states include Iowa, Illinois, Minnesota, Nebraska, Indiana, Missouri, Ohio and the Dakotas.

The US sold approximately 33 million tons of soybeans in 2017 to China, or nearly one-third of the beans imported by the Asian country. By comparison, Brazil shipped more than 50 million tons of soybeans last year to China and represented about 57 percent of the total imports.

China buys roughly half of US soybean exports, or about $14 billion annually, and roughly one in three rows of soybeans grown on the nation’s farms goes to the world’s second-largest economy, according to the American Soybean Association.

Overall, US agricultural exports to China represent almost $20 billion annually for American farmers.

Experts say that if China cuts agricultural exports, it could impact a wide swath of the farm economy — from small to large farmers. It could reduce profits for farmers and make them more willing to delay large purchases, such as new machinery, and encourage them to cut back in other places.

There’s already been volatility in the futures markets tied to the tariff threat on soybeans. Other potential impacts could be shipments turned back from Chinese ports or purchases canceled.

The world’s second largest economy is also the top buyer of US sorghum, which it uses to feed livestock, but an anti-dumping investigation is expected to curtail purchases this year.

Economists say China’s tariffs could create a situation where global agricultural sellers such as the European Union and South America could take share away from the United States in key agricultural commodities sold to China.

For example, if China diversifies suppliers and buys less from the US, countries such as Brazil may have an incentive to expand soybean acreage.

Sagging farm income

China’s planned tariffs on US agriculture come as the nation’s farm belt is already struggling after years of low crop prices. Some farmers are considering exiting the business. In February, the US Department of Agriculture predicted net farm income in 2018 would fall to lowest level in nominal terms since 2006.

“The reality is the farm economy is already hurting, so making the US a residual supplier of grains and meat to China will just lower farm incomes further,” said Dan Kowalski, vice president of the Knowledge Exchange division at Denver-based CoBank, a major agricultural and rural lender.

“In farming communities, that pain will filter down to other businesses so it’s not just agriculture that will get hit. It’s going to be everything from the local co-op to local law firms,” he added.

Meantime, the Trump administration is looking at ways to cushion the blow for farmers.

“It’s not probably very smart in these kind of things to lay all your cards on the table about what you’re going to do,” USDA Secretary Sonny Perdue said Thursday during remarks at an event in Kentucky.

Farm relief

That said, Perdue indicated that the president authorized him “to use the authorities we have within current appropriations — the Commodity Credit Corporation and others — to develop a plan once we see what the impact of these tariffs will be.”

Perdue didn’t elaborate, but some agricultural experts suggest it would be a mistake for the administration to resort to subsidies. For one, they said it could lead to retaliation by other agricultural exporters, even if it helps in the short term. “Subsidies are just a patchwork and not sustainable,” said Luis Ribera, an agricultural economist at Texas A&M University in College Station. “They usually disrupt markets and harm producers in the long run.”

At the same time, experts point out that the White House has time to decide before the new round of tariffs on some 1,300 Chinese goods — or about $50 billion worth of products — goes into effect, since there will be a 30-day comment period for business interests and other parties. Also, that will be followed by a period up to 180 days, where the president can decide before taking the next step to formalize the duties against the Chinese.

Ripple effects

Yet that extended timeline is cold comfort to some.

“If the rhetoric continues to amp up, the impact could be significant in the medium and longer term,” said CoBank’s Kowalski. “You’re talking about price impact, obvious trade impacts of less product being sent overseas and ripples throughout the supply chain.”

In early March, Trump unveiled a 25 percent duty on steel imports and 10 percent charge on aluminum imports, essentially targeting suppliers such as China. That ultimately led to China’s finance ministry to unveil retaliatory tariffs on up to 128 kinds of US goods, including pork, nuts, wine and fruit.

Effective Monday, duties of up to 25 percent went into effect on 128 US products, including pork, wine, nuts and fruit.

One in 4 hogs in the US is sold overseas, and the Chinese are the world’s top consumers of pork. At about $1.1 billion, mainland China and Hong Kong together are the third-largest market for US pork based on value. Last year, China was the second-largest volume market for the American pork industry after Mexico.

Published in Daily Times, April 9^th 2018.