Yesterday, I received an urgent email from a friend in Washington. He attached a controversial article written by an analyst over at DTN. He called it a “nightmare scenario” for soybean farmers. Let me explain.
The article, which you can read after the jump, explains a potential scenario where the United States and China really dig into a trade war.
The logic goes like this: The U.S., still fuming from an ongoing spat with China, decides to take a Louisville Slugger to its relationship with its largest trade partner and place restrictions on two key Chinese exports: Steel and aluminum.
Recently, the head of the U.S. Commerce Department issued a statement that rattled both the American Soybean Association and the National Pork Producers Council.
Secretary Wilbur Ross said that the sheer volume of metals coming from China is a national security threat.
To be clear, he said that these metals “threaten to impair the national security” under Section 232 of a 1962 trade law. Ross wants to put a minimum 24% tariff on steel imports. It’s not just China that would face the higher costs.
It’s Russia, and Costa Rica, and Egypt, and nine other nations.
Trump has until April to make a decision on whether to impose the tariffs.
U.S. steel companies and trade unions are encouraging the President to follow through on a campaign promise to place tariffs on steel imports. Agricultural associations, meanwhile, are begging the President to not open this door.
The expectation – naturally – is that China would retaliate by placing strong restrictions on U.S. agricultural products.
And boy – indeed – that would be a nightmare.
China is the largest buyer of U.S soybeans.
Let’s just say this: It’s a bad idea. Not only is it a bad policy idea to start a trade war, but the U.S. also lacks enough domestic production right now to ensure to fill the gaps after an expected supply decline.
The issue for soybean farmers is not just retaliation from China. It’s retaliation from many other countries.
I had said before that I wasn’t overly concerned if China restricted access to U.S. soybeans. So long as the U.S. Soybean Export Council is doing its job, they should be able to source soybeans to other markets in the event that China decided to take such a drastic step that would really hinder its livestock industry.
But hitting steel would lead other countries to reconsider business with our exporters. These relationships take years to develop.
China is well aware what states supported Trump in 2016.
Someone needs to tell Ross that this is the type of decision that loses elections.
Ag Policy Blog
Ag Groups Worry About Pandora’s Box of Going After Steel Imports
Leaders from the American Soybean Association and National Pork Producers Council expressed concern Friday about potential tit-for-tat trade retaliation against U.S. agricultural exports after the Trump administration proposed that aluminum and steel imports, particularly from China, are a threat to national security.
It’s a rare argument for the U.S. to build a case that trade of a certain product is a national security threat. Commerce Secretary Wilbur Ross said the volume of metal coming into the country threaten American steel mills, and as such “threaten to impair the national security” under Section 232 of a 1962 trade law.
Ross released a report on the impact of steel and aluminum imports on U.S. industries. Steel companies and unions for workers in those industries praised the report and called for President Donald Trump to now follow through on a campaign promise and take action against export countries.
Eighteen agricultural groups wrote Ross last July cautioning him not to place restrictions on aluminum and steel imports, declaring it would open a “Pandora’s Box” that would be a disaster for global trade “and for U.S. agriculture in particular.” The farm groups wrote to Ross that it would be “a short-sighted mistake” to restrict imports based on national security claims. The farm groups called on Ross to consider the broader implications for the economy “and avoid igniting a trade war through new restrictions on steel or aluminum trade …”
The American Soybean Association cautioned Friday against the risk of retaliation by China, which buys roughly one third of U.S. soybeans, valued at more than $14 billion. ASA President and Iowa farmer John Heisdorffer said the news from the Commerce Department should be concerning for soybean farmers.
“China is not only our largest customer, it purchases more than all our other customers combined. Add to that the sobering fact that our capable competitors in Brazil and Argentina are all too happy to pick up whatever slack we leave in supplying the Chinese market, and these potential tariffs have the potential to make life very hard for soybean farmers.”
Heisdorffer added that China had specifically pointed to soybeans as a target for retaliation if the U.S. pursued tariffs under Section 232. “Prices are down 40% and farm income is down 50%, and we simply can’t afford for those numbers to get worse, Heisdorffer said. “Soybean farmers look to the White House to move forward with a China strategy that strengthens the competitiveness of our domestic industries while at the same time growing our export opportunities.”
The National Pork Producers Council also noted President Trump dismissed concerns that imposing tariffs on steel and aluminum imports would hurt the U.S. economy. In a White House meeting this week, several Republican lawmakers cautioned him about the potential negative consequences of the tariffs. NPPC stated the group is worried that import tariffs on metals could prompt retaliatory duties on U.S. exports, including agricultural products.
The New York Times reported that, in a call with reporters on Friday, Ross played down any negative impact from the trade actions, saying that any increase in the cost of steel and aluminum for products like soft drinks and canned soup would be “trivial.” “We really don’t buy that argument,” Ross said.
The U.S. is the world’s largest steel importer and China is the world’s largest steel producer and exporter.
Ross’s report recommends a tariff of at least 24% of all steel imports, but increasing the tariff from at least 12 countries, including China, as well as Brazil, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam. Further, the Commerce Department recommends setting a quota cap on steel imports that equals the amount of U.S. steel exports in 2017.
Or the Commerce Department recommends capping steel imports from all countries equal to 63% of their steel exports to the U.S. in 2017.
On aluminum, imports now account for as much as 90% of total U.S. demand, up from 66% in 2012.
The Commerce Department recommends a tariff of at least 7.7% on all aluminum exports from all countries, or a 23.6% of all aluminum products from China, Hong Kong, Russia, Venezuela and Vietnam.
Or, again, the U.S. could cap all imports to 86.7% of all of their 2017 aluminum exports to the U.S.
President Trump has not made any final decisions based on the Commerce Department recommendations. Trump can choose any variety of actions, including choosing to do nothing. The Commerce Department stated Trump is required to make a decision on the steel recommendations by April 11 and on the aluminum recommendations by April 19.