U.S. and Chinese Cargo Ships on a Collision Course

Trade War Could Signal Tough Times for Agriculture

Is history repeating itself?

The year was 1930. America was looking inward with a focus on protectionist policies when Congress passed the Smoot-Hawley Act. The act, passed in an effort to protect farmers and U.S. factories, raised tariffs on American imports to nearly record levels. In response nations began striking out at each other with tit-for-tat tariffs — slowing trade globally.

The trade war that resulted from the passing of Smoot-Hawley escalated beyond expectations, rolling into a true war with the onset of World War II. It was the impetus for the formation of the World Trade Organization in an effort to avoid a situation of this magnitude from happening again.

Fast forward nearly 90 years and the U.S. has hit China with close to $40 billion worth of tariffs in support of U.S. manufacturing, or more specifically steel. Beijing has responded with tariffs on billions of dollars’ worth of U.S. exports and has called this the “beginning of the biggest trade war in economic history.”

The signal that there is no solution in sight for the trade relationship with China is the announcement of a $12 billion dollar short-term relief program designed to assist producers in meeting the costs of disrupted markets. The relief will be distributed through three programs, all authorized under The Commodity Credit Corporation (CCC) Charter Act. Details of the program are unclear — including how you enroll, how payments are processed and who is eligible — but what we do know is that this isn’t a solution but a band-aid.

A band-aid that the industry doesn’t want. Across the board, farmers do not want an aid package, or ag-welfare as it’s being referred to in consumer media. Ask any farmer and they will tell you that they would rather sell their crops in the free market and make an honest profit than receive a government handout.

Announced on the heels of the relief package was a statement that the European Union (EU) had agreed to buy “a lot of soybeans.” What “a lot” means? Nobody is quite sure. It is positive, to be certain as soybeans will bear the brunt of the trade pressure, representing 60 percent of the ag exports to China or $14 billion. But while it may help lessen the soybean blow, other market segments like dairy and apple production will undoubtedly take a significant hit.

Soybeans

When you talk about billions, it’s hard to conceptualize what that actually means. According to the American Soybean Association (ASA), exports to China represent 1 in every 3 rows of harvested beans or one-third of the total U.S. soybean crop. According to the 2018 USDA acreage report, current planted soybean acreage is estimated at 89.6 million acres. That is 3.68 percent of the acreage of the entire United States — or a size somewhere between New Mexico and Montana. One-third of that crop would be roughly the size of Mississippi — the thirty-second state in terms of total acreage.

Montana Mississippi state outlines

To say that the potential impact of these tariffs is dire would be an understatement. Soybean futures are already taking a hit, sinking 14 percent in June alone, representing the largest loss in four years.

U.S. Soybean Futures Chart Since the Start of 2018

John Heisdorffer, a soybean grower from Keota, Iowa, and president of the ASA, said it best. “The math is simple. You tax soybean exports at 25 percent, and you have serious damage to U.S. farmers.”

Because soybean growers are getting the brunt of the impact doesn’t mean that other commodities aren’t suffering.

Dairy farmers have suffered through low prices for the last few years. They were starting to see a recovery when they got put back into the ropes with the export of equivalent of a one-two punch. Mexico leveled responsive tariffs on cheese earlier this year; then the retaliatory measures handed down by China eliminate all hope of profitable margins that were on the horizon at the first of the year.

Apple growers only accessed the Chinese market in the last decade and fear that tariffs like these could not only damage current prices, but also undo years of work that allowed them to gain access. This would have lasting effects on apple production and prices.

Darren Coppock, president and CEO of the Agricultural Retailers Association had this to say in a recent editorial for Farm Journal’s AgProfessional: “If the United States loses even a share of its market for agricultural products to China or other export markets, there isn’t a farm bill program large enough to mitigate the short-term damage to farmers and their business partners.”

While some short-term relief is being made, there are going to be ongoing repercussions according to U.S. Trade Representative Robert Lighthizer in Senate testimony. Some even speculate that things could get worse before they get better.

With so much up in the air, what can farmers, ranchers and the companies that support them do? Be vocal. Reach out through associations. Write and call your elected officials. Make sure that you do your part to ensure that the impact on agriculture is heard.