Soy Farmers Warn Tariff Response Could Hurt

After China reacted swiftly to punitive U.S. tariffs on a range of Chinese goods with a list of possible counter-tariffs on U.S. exports including soybeans, the American Soybean Association (ASA) is warning that they “will have a devastating effect on every soybean farmer in America.” The effect on barge movements of soybeans could be equally devastating if the tariffs are allowed to take effect.

China is the biggest customer for both U.S. and Brazilian soybeans. According to the U.S. Department of Agriculture, oilseed and oilseed product exports, particularly soybeans, represent a significant source of demand for U.S. producers and make a large net contribution to the U.S. agricultural trade balance.

ASA expressed its “extreme frustration” with the Trump administration about the escalation and called on the White House to reconsider the tariffs. “China purchases 61 percent of total U.S. soybean exports, and more than 30 percent of overall U.S. soybean production,” said ASA president and Iowa farmer John Heisdorffer. “It should surprise no one that China immediately retaliated against our most important exports, including soybeans. We have been warning the administration and members of Congress that this would happen since the prospect for tariffs was raised. That unfortunately doesn’t lend any comfort to the hundreds of thousands of soybean farmers who will be affected by these tariffs.

“Soybean futures are already down nearly 40 cents a bushel as of this morning. At a projected 2018 crop of 4.3 billion bushels, soybean farmers lost $1.72 billion in value for our crop this morning alone. That’s real money lost for farmers, and it is entirely preventable.”

The tariff wars began when President Donald Trump announced targeted tariffs against imported steel and aluminum—25 percent for steel and 10 percent for aluminum.

On March 22, the Trump administration announced that exemptions on the steel and aluminum tariffs would be given to Canada, Mexico, the European Union, Australia, South Korea, Brazil and Argentina until May 1. In return for its exemption, South Korea had to renegotiate a trade deal with the U.S. that allowed more U.S. cars into the South Korean market.

China’s initial response was a series of carefully targeted tariffs on products like pork, wine and blue jeans that amounted to more than $1 billion.

It didn’t end there. On April 3, the Office of the United States Trade Representative upped the ante by releasing a list of more than 1,300 Chinese products it threatened to hit with a 25 percent tariff amounting to about $50 billion. It said the list of products “is based on extensive interagency economic analysis and would target products that benefit from China’s industrial plans while minimizing the impact on the U.S. economy. Sectors subject to the proposed tariffs include industries such as aerospace, information and communication technology, robotics and machinery.”

The list of Chinese products proposed for tariffs can be found at https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf.

China’s Response

China’s response on April 4 was to publish its own list of 104 U.S. products on which it threatened to impose retaliatory tariffs, including soybeans.

Trump has said that one important goal of the tariffs is not just to correct trade imbalances, but to get China to change certain trade practices that disadvantage U.S. business operating in China.  Foreign businesses in China have long complained about Chinese requirements that they transfer intellectual property to Chinese businesses as a condition of doing business in China. But business critics of the tariffs say there are better ways to put pressure on China.

In its statement, the ASA said, “We regret that the administration has been unable to counter China’s policies on intellectual property and information technology in a way that does not require the use of tariffs. We still have not heard a response from the administration to our March 12 letter requesting to meet with President Trump and discuss how the administration can work with soybean farmers and others in agriculture to find ways to reduce our trade deficit by increasing competitiveness rather than erecting barriers to foreign markets.

“But there is still time to reverse this damage, and the administration can still deliver for farmers by withdrawing the tariffs that caused this retaliation. China has said that its 25 percent tariff will only go into effect based on the course of action the administration takes. We call on President Trump to engage the Chinese in a constructive manner—not a punitive one—and achieve a positive result for soybean farmers.”

Ken Eriksen of Informa Economics told The Waterways Journal that any soybean tariff impacts will be determined by hard facts of global supply and growing demand.

“Simply put, there is not enough global supply for China to completely exclude the U.S.,” said Eriksen. China imports about three-quarters of the world’s global supply of export soybeans.  The U.S. produces roughly 120 million tons a year, of which 35 million tons goes to China, representing about 35 to 40 percent China’s imports. Brazil has overtaken the U.S. as China’s top supplier. “But even if China retaliates and buys all of Brazil’s soy crop, U.S. producers will send our beans elsewhere to take up the slack left by Brazil’s withdrawal, so there will still be some barge movements to the Gulf” for soybeans headed to Europe or the Middle East.

Eriksen noted that if the tariffs kick in, it will not be at least until 180 days after a comment period closes on May 22. There could be a short-term hit to Mississippi River barge movements if buyers, rushing to get under the tariff window, send soybeans through the Pacific Northwest by rail for quick export before the tariffs take effect.

“At this time of year, the Chinese are not buying a lot of soybeans anyway from the U.S.; they usually wait until the fall harvest. That said, late last year they bought a lot of delivery contracts, some for this year and some for next.”

Eriksen said that soybean farmers understand the need to confront some of China’s trade practices, but believe tariffs are not the way to do it. He concedes that even if soybean shipments end up not suffering too much, the short-term uncertainty and volatility can hurt. “Volatility is good for traders, not so good for farmers.”

But will any of this happen, or will negotiations forestall these threatened consequences? Eriksen noted that the Trump administration pulled back on some aluminum tariffs, offering exemptions to favored allied and trading partners like Canada, Mexico and South Korea.