Agriculture tariffs have impact in Iowa

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DES MOINES, Iowa (KCRG-TV9) -- President Donald Trump is attempting to reduce the trade deficit and defend intellectual property by announcing tariffs on China. In retaliation, China targeted agriculture products for retaliation. About 20 percent of trade between the United States and China involves agriculture.

Austen Franck of Franck Farms works on harvesting an 80 acre soybean field in a John Deere combine near Quasqueton on Tuesday, Sept. 22, 2015. (Andy Abeyta/The Gazette)

Iowa Senator Chuck Grassley hopes President Trump's trade dispute with China will fix unfair agriculture subsidies and intellectual property problems, "Because they know that we know that they're cheating on intellectual property, they're putting pressure on our business people over there to share their trade secrets, all of it, wrong."

But China's enacted 25 percent tariff on pork and proposed tariffs on soybeans and corn pose a problem. Once they're in place, they don't easily go away.

Chad Hart is an Extension Economist with Iowa State University, he says, "As we, if you will negotiate our way out of that, we remove some of those, but we almost never knock all of them back out again and so there are these lingering policy impacts that continue to drag on the economy even after the dispute is long gone."

There was already a 12 percent tariff on frozen pork, now it is 37 percent. For soybeans, there is only a three percent tariff, the China's proposal will put that at 28 percent. On corn, there is a one percent tariff.

That comes to the economic part of this, why are exports important to Iowa? Hart points to the law of comparative advantage. Iowa makes more ag products than it can use, so it has to export.

Hart says, "We figure out what we do better than everybody else, we'll do that, and we'll trade with them and they can ship us products that, if you will, they do relatively better than we do."

An example is hogs, Iowa's the number one hog producer in the nation and exported more than $48 million of pork to China in 2017.

President of the Iowa Pork Producers Association Gregg Hora says, "Of importance in pork exports, are products to China that we may not think are popular here in the United States. That's what's called pork variety meats. Such as the ears, pigs feet, and jowls."

Those products don't have the same market here in the U.S. so it makes sense to export them, for maximum profit.

Hart says tariffs can hurt that, "It's a rock that hits the water, and then you get ripples, waves because of that and then the ripples will impact all of the competing markets that are trying to fill that Chinese demand now that the U.S. has been hit by this tariff."

Not all economies benefit from comparative advantage, it encourages buying out of state instead of supporting local products that may be more costly. That line of thinking pushes for tariffs to regain some competitive advantage.

Hart says when tariffs happen for an economic model like Iowa, there is a loss in the big market but then the demand shifts to different countries.

He says, "And I'll gain some sales there, but the problem is, even months after the impact, I probably haven't gained enough sales back to completely offset the loss of the first market."

Because of Chinese tariffs, countries like Brazil can actually see a boost in soybean or corn prices as China looks to them for its demand. Those who had bought from Brazil will then turn to the cheaper US products. But ultimately Hart says product prices tend to go down.

Iowa Governor Kim Reynolds says, "No one wins in a trade war, and while some disruption may be necessary and part of the negotiating process, we know that this absolutely cannot be done on the backs of Iowa's farmers. It's important that we find a reasonable agreement and make sure that it's targeted and done in a timely manner, which will also help us mitigate the risk of us losing market share."

Reynolds met with President Donald Trump and other governors and congressional leaders on Thursday to discuss issues impacting the agricultural community, including trade.