Business

Eastern Iowa businesses cope with trade stress

More than 3,000 Iowa companies exported $13.2 billion in goods last year

Pallets are stacked in a warehouse at Cedar Ridge Winery and Distillery in Swisher on Wednesday, July 11, 2018. The business has already had to lower their prices to accommodate European tariffs on alcohol. (Rebecca F. Miller/The Gazette)
Pallets are stacked in a warehouse at Cedar Ridge Winery and Distillery in Swisher on Wednesday, July 11, 2018. The business has already had to lower their prices to accommodate European tariffs on alcohol. (Rebecca F. Miller/The Gazette)
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Cedar Ridge Distillery made one of its first international shipments this week. Founder and owner Jeff Quint had negotiated prices and scheduled loading for two shipping containers of prizewinning bourbon bound for France and Denmark.

Then the European Union applied a 25 percent tariff on American whiskey in response to the Trump administration’s earlier tariffs on selected imports.

The shipments still happened, but at significantly lower prices.

“We had the pricing all set, and after the tariffs happened we got stuck renegotiating the pricing,” said Quint. “We’ve had to cut the price on both containers just to keep the sales. We didn’t eat all of (the added cost), but we ate most of it.”

Sales to Canada, also setting tariffs on American goods in response to the Trump administration’s on its own, are off, too.

“We were planning to increase our volume up there, and we’ve backed off on that,” Quint said.

Cedar Ridge, which employs 46, is one of the area business adjusting to the sudden end of three decades of essentially free trade with foreign customers.

At stake: $13.2 billion worth of business among 3,221 Iowa companies and 185 foreign countries last year, according to the Iowa Economic Development Authority. Leading exports included farm equipment and other machinery ($3.5 billion), pork ($2 billion) corn ($1.75 billion) and soybeans ($3.1 billion).

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“Iowa will be the biggest loser in this battle, and I sincerely hope the federal government gets its act together because Iowans will start feeling this,” said Dimy Doresca, director of the University of Iowa’s Institute for International Business.

The Cedar Rapids Metro Economic Alliance estimates Cedar Rapids-area businesses account for eight percent of the state’s total, or about $945 million.

“We’re hearing from a lot of businesses,” said Doug Neumann, executive director of the alliance. “For a lot of businesses, there have already been impacts.”

In response, the alliance has stepped up its lobbying efforts, joining the U.S. Trade Council, a new West Des Moines-based group. It’s also supporting legislation that would give Congress oversight over tariff increases.

That non-binding measure passed the U.S. Senate 88-11 on Wednesday.

“It is time to advocate and make sure people understand how critical trade is to Iowa’s economy,” Neumann said.

The Iowa City Area Chamber of Commerce announced its opposition to the Trump administration’s tariffs in April, although members haven’t been vocal about it, according to spokesman Rob Merritt.

“We’ve not gotten any feedback from members expressing concern, but we’re looking into that,” Merritt said.

It is possible some manufacturers could profit from a trade war as foreign competitors are priced out of the American market.

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“But even those that have seen some positive economic results from the tariffs don’t think this is good global economics,” Neumann said.

“Businesses like certainty, and the current trade environment is creating unpredictability,” said Jacque Matsen, IEDA’s communications director.

Balancing headwinds

Two local agricultural processors hope to ride out the trade battle.

John McGlothlen / The Gazette

Diamond V so far has escaped direct tariffs on its livestock feed additives. Mike Goble, the company’s global managing director, said sales are up 20 percent over last year in Canada and the EU, 25 percent in China.

The company, owned by Minnesota-based Cargill, employs 130 in Cedar Rapids, where all its products are made from raw materials sourced within a 100-mile radius.

Ingredion, which also has facilities in Cedar Rapids, supports “free and open trade,” according to spokeswoman Becca Hary. The Illinois-based company plans to continue serving the 40 countries in which it operates through facilities in those countries.

“The vast majority of our ingredients are made and used locally, and our geographic diversity balances country-specific headwinds,” Hary wrote in an email.

Ingredion’s corn wet-milling plant in Cedar Rapids employs 210. The facility makes industrial starches for the paper, textile and food industries, as well as ethanol.

Goble — who estimated he’s spent three years total in China since 2000 — said Diamond V’s products can help Chinese farmers cope with that nation’s 25 percent tariff on U.S. corn and soybeans, key feedstock ingredients.

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“This technology actually helps offset some of that,” he said. “They can use some lower-quality feedstuffs and still get the animal to perform the way it needs to. There is nothing in the marketplace comparable to what we do.”

Goble saw tensions on display at a Chinese trade fair he attended in June.

“When you get trade wars going on, there is more focus on consumer and producer sentiment on buying locally,” he said.

“That’s going to be the global reaction,” the UI’s Doresca said. “They are talking to other countries to come up with a global reaction to what the U.S. government is doing.”

But Diamond V’s unique product allows the company to ride out political turbulence, Goble said.

“We take the opportunities during this environment in the industry to actually invest during these times,” he said. “We’re confident that those kinds of things will work out and work through, and we’ll be able to capture and capitalize on those opportunities.”

But Doresca said most Iowa companies are more vulnerable.

“Companies in Iowa tell me they’re very worried, and there’s no way this is going to help,” he said. “We’re going to be hurt.”

Lower margins

Cedar Ridge’s Quint had hoped European sales would help support a planned $2 million expansion announced this past fall. Over the next three years, he intends to increase the distillery’s storage space for aging from 3,000 barrels to nearly 8,000.

“But they’re not going to buy our bourbon for a 25 percent premium,” he said. “That’s going to lower our margins for overseas sales.”

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Quint hopes to develop customers in Japan and Australia but has backed off plans to enter the Chinese market.

“When another country taxes your goods, it’s your problem, not the other country’s,” he said. “The seller overseas has to discount the price to get the sale.”

Still, Quint said the unsettled situation won’t affect Cedar Ridge’s plan.

“We’re a couple months behind on this now and have been watching things and waiting as long as we can,” he wrote in an email.

“We’ll start construction before the snow flies, though, I’m pretty confident. It’s not so much that we lose sales as it is that we just lower our margins on the sales.”

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