Tariff threats from China frustrating agriculture

Across the nation those involved in agriculture are expressing frustration (to put it mildly, in some cases) about the escalation of a trade dispute that has resulted in China’s announcement of a proposed 25% tariff on imported U.S. soybeans.

It does not take many guesses to figure out the topic of most concern heard by U.S. Department of Agriculture Secretary Sonny Perdue as he toured Ohio yesterday.

“[President Trump] understands that agriculture, based on its bountiful production, is always the tip of the spear on retaliatory measures. He is convinced that this will not be the case this time. He asked me to tell the farmers in Ohio, Kentucky, and Michigan exactly that,” Perdue said. “We have a renewed agreement with Korea and we have maintained that business. I do think there is optimism regarding NAFTA, which will help reduce that anxiety a little. Then we cope with China. These announcements are just the beginning. Hopefully the announcements from both sides will bring both countries to the table to address some of the unfair trade practices we believe China has engaged in, particularly intellectual property theft. Most farmers are Americans first and patriots. They want people to play by the rules. They do and they expect others to play by the rules. President Trump is the first President who has called out China for not playing by the rules. I think most farmers understand that, they just don’t want to be the only ones sacrificing in that arena.”

But at a time when commodity prices are mired in the worst agricultural economy in 16 years, a trade war with by far the largest importer of U.S. soybeans is a big ask for agriculture. China said that its 25% tariff will only go into effect based on the course of action the administration takes moving forward.

U.S. agriculture is nervous and calling upon President Trump to counter China’s policies on intellectual property in a way that does not require tariffs and engage the Chinese in a constructive manner that will achieve a positive result for soybean farmers.

“A 25% tariff on U.S. soybean exports to China not only will have a devastating effect on every Ohio soybean farmer, but it will also hurt every Ohioan who relies upon a healthy rural economy,” said Scott Metzger, Ohio Soybean Association first vice president and Ross County soybean farmer. “This retaliatory action by China was both predictable and avoidable, and it is the reason soybean farmers asked the Trump Administration not to impose tariffs against China in the first place.”

OSA (along with pretty much everyone else involved with agriculture) is calling on the White House to reconsider proposed tariffs imposed upon China that led to this retaliation. China purchases 61% of total U.S. soybean exports and more than 30% of overall U.S. soybean production.

“It is a big concern. China doesn’t have to enact a wholesale abandonment of U.S. soybeans to have a significant impact on the profitability of the U.S. soybean farmer. All that is required is a percentage of their historic sales shifting to Brazil or Argentina. If that happens it can be the difference between soybeans being at a profitable level or being 50 cents less and going into the red,” said Mike Steenhoek, executive director of the Soy Transportation Coalition. “The rise of China has been a real boon to the U.S. soybean farmer. It would be nice if our government was a facilitator to that and not a barrier.”

Soybeans are Ohio’s largest crop and top agricultural export. According to the Ohio Development Services Agency, Ohio’s $1.8 billion in soybean exports in 2017 accounted for more than 3.5% of all Ohio commodity exports. Soybean futures following the announcement quickly dropped nearly 40 cents a bushel, which, at a projected U.S. 2018 crop of 4.3 billion bushels, cost American soybean farmers $1.72 billion in value.

“I knew it was coming,” said Ian Sheldon, an agricultural economist, who serves as the Andersons Chair in Agricultural Marketing, Trade and Policy with The Ohio State University’s College of Food, Agricultural, and Environmental Sciences (CFAES). “This is obviously going to hurt farmers.”

If the China does follow through with the tariff threats and American soybean prices in China go up, other countries could step up to supply more soybeans to China, and they could be sold cheaper without the tariffs. In the long term, that could cause the United States to permanently lose a significant share of the soybean market, Sheldon said.

“U.S. farmers may not be able to grab that market share back,” he said.

Across the United States, about one in every three rows of soybeans grown is exported to China, said Ben Brown, who runs CFAES’s farm management program, which provides farm policy and market information to Ohio farmers and others. A 25% tariff on American soybeans in China would change that ratio to one out of every five soybean rows grown going to China, Brown said.

“The soybeans that don’t get sold to China are going to need a buyer somewhere,” he said.

Soybeans are one of 106 U.S. products with proposed tariffs in China announced on April 4. In addition to agriculture, the other two main areas targeted are aircraft and automobiles.

China’s tariff threat is the latest move in an ongoing back and forth with China that began March 8 when President Donald Trump imposed 25% tariffs on imported steel and a 10% tariff on imported aluminum from most countries, including China.

If the Chinese impose the tariff on soybeans, as well as on other agricultural products that they have announced, including pork and wine and a proposal to add beef, it could change farmers’ opinion of Trump, which has been largely supportive, Sheldon said.

“This may be the straw that breaks the camel’s back,” he said. “I think farmers haven’t walked away from the administration yet, but they might, in time.”