Tariffs dealing U.S. economy real-world consequences

Lack of deal with China continues to exacerbate farmers' economic struggles.

Jacqui Fatka, Policy editor

May 9, 2019

5 Min Read
Tariffs dealing U.S. economy real-world consequences

This week’s failure to reach a potential trade war solution with China continues to deal real-world impacts on farmers. Since the weekend tweet by President Donald Trump threatening to raise tariffs on $200 billion of Chinese goods from 10% to 25%, Indiana farmer Brent Bible lost $50,000.

Bible farms 5,000 acres of corn and soybeans in west-central Indiana near Lafayette. Usually, the margin on his grain sales is less than 10%, but with the 10% reduction in corn prices and 20-25% reduction of soybean prices from a year ago, that 10% margin has been wiped out and then some. He’s operating at a loss now.

A record crop of both corn and soybeans in 2018 has Bible left holding 20-25% of his 2018 corn crop and 5% of soybeans. Yet, going into 2019, he has forward-priced only about 20% of his soybeans and roughly the same amount for his corn.

“In the last three days of trading, we’ve seen that price reduction equate to about $50,000 in loss for us simply because of news and anticipation on what this is going to bring in terms of a trade hardship,” Bible said.

Hindsight is always clearer, as Bible said he should have mitigated risk a little bit better. However, based on the information he was getting from the Trump Administration, he felt fairly confident that a deal was going to be reached with China by now. With reports that China would buy “tremendous” amounts of corn and soybeans being leveraged to help bring some equilibrium to the trade imbalance, he was hopeful. “When you’re getting that kind of information, you have confidence -- whether right or wrong -- that things are soon to be better. We’re not seeing that come to fruition, unfortunately,” Bible said.

Related:Trump threatens China with more tariffs

Bible participated in a media call May 9 with the coalition Tariffs Hurt the Heartland highlighting the harmful effects to the overall U.S. economy from the tariffs.

“Our competitive advantage has always been that we are a reliable source of product,” Bible said on the call. “This has taken that away. It has made it such – by changing the price as much as the tariffs have -- that it is so uncompetitive that other countries are willing to now take the risk that some of the South American countries have in terms of logistics, safety and being reliable. China and others are now willing to take that risk since we are priced so far out of the market.”

Laura Baughman, president of the Trade Partnership, shared statistics from a study released by Tariffs Hurt the Heartland that shows that an increase in tariffs to 25% would put nearly 1 million American jobs in jeopardy and cost the average family of four more than $750. The study also found that if tariffs were to go into place on remaining imports from China and on automotive imports, it would cost more than 2.2. million American jobs, reduce gross domestic product by over a full point and cost the average family of four the equivalent of a full paycheck: more than $2,300.

Related:Farmers faced with escalating Chinese tariff situation

Through February, the U.S. government collected $18 billion in tariffs from the Section 232 and Section 301 actions. Of that $18 billion, $12 billion was due to the Section 301 tariffs on China.

Those costs are not coming out of the pockets of the Chinese government or consumers, however. David French, National Retail Federation senior vice president of government relations, noted that tariffs are paid by American businesses and consumers, and those tariffs are not just leverage in the ongoing negotiations with China but pose “real-world consequences that cascade from the decision to use tariffs to make Chinese make concessions that impose real pain on millions of Americans along the way.”

The Market Facilitation Program (MFP) payments announced last fall offered a lifeline for Bible and many other producers. “We were anticipating probably looking at a breakeven year. When that payment was announced, it made it more certain that we would at least show a profit for the year,” Bible said, noting that “2018 was not a bad year once we factored in that MFP payment; it turned out to be a satisfactory year.”

However, he has heard from other farmers that they weren’t so lucky in 2018, as working capital took a significant hit. “Many have been in a pattern of erosion of working capital for the last three to four years. That’s just not sustainable,” he said.

Bible said he’s operating at a loss today and projects to be operating at a loss through this year.

“We will burn through cash equity in the business at a fairly rapid rate if [tariffs] would continue. Our specific operation probably would survive two to three years operating at this level of loss,” he said.

Meanwhile, on Capitol Hill, the House agriculture subcommittee on general farm commodities and risk management held a hearing on the state of the farm economy. Matt Huie of Beeville, Texas, noted that if the tariff war ends tomorrow, the dispute will still not be resolved.

“Bins are full, warehouses are full, but there’s not a system in place to move that stuff out. We have a glut of grain,” he admitted. He said the committee needs to be “talking loudly about another MFP” from the Administration or taking action via the committee to offer support.

Rep. Angie Craig (D., Minn.) said in her questioning to the panel that farmers continually are “used as political bargaining chips in a senseless trade war.” She added, “The short-term pain for long-term gain is getting old.”

About the Author(s)

Jacqui Fatka

Policy editor, Farm Futures

Jacqui Fatka grew up on a diversified livestock and grain farm in southwest Iowa and graduated from Iowa State University with a bachelor’s degree in journalism and mass communications, with a minor in agriculture education, in 2003. She’s been writing for agricultural audiences ever since. In college, she interned with Wallaces Farmer and cultivated her love of ag policy during an internship with the Iowa Pork Producers Association, working in Sen. Chuck Grassley’s Capitol Hill press office. In 2003, she started full time for Farm Progress companies’ state and regional publications as the e-content editor, and became Farm Futures’ policy editor in 2004. A few years later, she began covering grain and biofuels markets for the weekly newspaper Feedstuffs. As the current policy editor for Farm Progress, she covers the ongoing developments in ag policy, trade, regulations and court rulings. Fatka also serves as the interim executive secretary-treasurer for the North American Agricultural Journalists. She lives on a small acreage in central Ohio with her husband and three children.

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