Tariffs are an ongoing concern for farmers as harvest is delayed due to wet conditions in many areas of the Midwest. Even with the trade deals made with Mexico and Canada, concerns continue.
A new study led by John Crespi, interim director at the Center for Agricultural and Rural Development at Iowa State University, shows the impact of trade disruptions due to tariffs estimated losses to Iowa’s gross state product in the range of $1 billion to $2 billion.
“The farm crisis of the 1980s, of course, was much worse because it also came at a time of very high interest rates and record farm debt,” Crespi said. “An interesting déjá vu with the farm crisis of the 1980s is that much of the impact was linked to policies out of Washington.”
The CARD study calculates Iowa’s soybean industry facing losses between $159 million and $891 million. Iowa’s corn industry may lose between $90 million and $579 million. Losses in the hog industry could be $558 million to $955 million. Ethanol production is estimated to lose $150 million.
How the prices react to changes in exports will have a large impact on the losses noticed. “For farmers, the obvious question is where and how much of your product will you sell this year and next year, and for what price?” Crespi said. “But the harder question is what happens in two, three or 10 years if the trade wars continue? You could find that the U.S. loses so much market share that a decade from now, even if you get rid of the tariffs, the U.S. may be a smaller player.”
If the United States has a long-term reduction in the world market share of agricultural commodities it would lead to a major concern for farmers.
The recent United States-Mexico-Canada agreement is good for farmers and will help with regaining some of the export losses. Congress still needs to ratify the agreement.
Iowa Gov. Kim Reynolds said, “NAFTA has been good for agriculture, but a modernized agreement could provide better gains for Iowa farmers. Strengthening trade with Canada and Mexico provides more certainty to our Iowa farmers and the agribusiness sector.”
Reynolds explained that in 2017, 30.58 percent of Iowa’s exports went to Canada and 16.94 percent went to Mexico, making them Iowa’s two largest trading partners. Canada and Mexico also account for 40 percent of U.S. pork exports, with 30 percent of U.S. pork exports coming from Iowa.
The effects of the tariffs on agricultural trade are concentrated, as the U.S. has trade agreements with several countries. The trade disputes, however, are with some of the largest trading partners. These agreements show an increase of agricultural exports from 19 percent in 1985 to 43 percent of total agricultural exports in 2017. Trade with China grew starting in the early 2000s as more soybeans were needed to feed Chinese hogs. This has continued to support higher soybean prices, according to the study.
“The United States has a comparative advantage. We are the world’s largest producer of many agricultural products and have developed significant resources to transport our agricultural products throughout the country and around the world. Compared to other countries, the United States is a high production, low cost source of agricultural products,” Crespi said.
Lost agricultural revenue isn’t the only way trade disputes can affect the industry. Revenue losses can also cause lost labor income and lost tax revenue, according to the CARD study.
It is estimated that labor income declines in the corn, soybean and hog industries may range from $245 million to $484 million, or up to 12,300 jobs affected.
“What we cannot do is predict how such disruptions might change markets in the very long run. As the tariffs raise the world price of a variety of goods, not just agricultural goods, firms and nations that previously remained mostly on the sidelines will find their industries competitive. People will still need to eat, and the higher prices will mean that importers will substitute one nation’s goods for another’s,” Crespi said.