Iowa State study finds trade hit from tariffs for Iowa could reach $2 billion

Soybeans grow in a flooded field are seen near Adel, Iowa, U.S., July 5, 2018. Picture taken July 5, 2018. REUTERS/Scott
Soybeans grow in a flooded field are seen near Adel, Iowa, U.S., July 5, 2018. Picture taken July 5, 2018. REUTERS/Scott Morgan

An estimated hit on Iowa’s economy of up to $2 billion over the next year because of international trade disruptions could get even worse under the most recent round of tariffs, Iowa State University researchers believe — potentially diminishing over the long term the reach of the state’s agricultural products.

“History has shown that the world’s farmers don’t just sit back and wait for countries to settle their differences,” said John Crespi, interim director of the Center for Agricultural and Rural Development at ISU. “They ring the doorbell and offer their products.”

The center recently published research showing trade disputes could hit Iowa hard — depending on different scenarios — amounting to gross state product losses of between $1 and $2 billion over 12 months.

Iowa’s 2017 gross state product was $190 billion. The Census Bureau put its export value for 2017 at $13.4 billion — about 7 percent of that total.

Iowa’s top exports include corn, at $1.18 billion; tractors at $747 million; and fresh and chilled pork at $442 million, the bureau said.

Canada is the top market for all Iowa exports, receiving $4.08 billion, followed by Mexico with $2.26 billion, Japan at $1 billion and China and Germany next, the ISU study found.

When looking at only ag exports from the United States, China and Canada trade off for the top spot. And when it comes to just soybeans, China plays an outsize role — until now, the market there accounted for $14 billion worth of U.S. soybeans, researchers said in the study.

That makes recent trade disputes — particularly with Canada, Mexico and China — impactful for Iowans.

“American farmers are always on the front lines of trade wars,” Crespi said.

Overall losses to Iowa’s $5.2 billion soybean industry are projected to be between $159 and $891 million, according to the ISU research.

Overall losses to its $8.5 billion corn industry are expected to be between $90 and $579 million. Overall losses to Iowa’s $7.1 billion pork and hog industry are expected to be between $558 and $955 million.

And a 2 percent drop in ethanol prices is projected to amount to about $105 million in lost revenue for Iowa producers.

ISU researchers note the trade disruptions shouldn’t have come as a surprise to anyone as President Donald Trump long has touted trade rebalancing as a priority.

The Chinese response to U.S. steel and aluminum tariffs in March had the biggest impact on Iowa. The back and forth escalated the hurt — although Trump’s most recent tariffs on Chinese goods this month, and the response, have not been calculated into the ISU research.

Crespi said they likely will augment the impact slightly but are unlikely to have as big an impact as the ag-specific retaliatory tariffs have had.

And, even if the trade war dissipates over time and the countries emerge with new agreements, the United States and its producers — including Iowans — could have forever lost footing in the world marketplace.

“The harder question is what happens in two, three or 10 years if the trade wars continue,” Crespi said. “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.”

The research highlighted examples of long-term world market share impacts, including fallout from the Russian grain embargo in the 1980s. During that embargo, European farmers stepped in and gained much of the trade American farmers lost, according to the ISU research.

“Today,” according to the researchers, “soybean growers are already facing a similar situation. For decades, U.S. soybeans set the price to which soybeans grown in other countries were marked. Currently, U.S. soybeans are selling on the world market at a discount to Brazilian soybeans.”

The ISU research found that labor income declines in the corn, soybean and hog industries could range from $245 to $484 million — which it reports is enough to support 9,300 to 12,300 jobs.

As far as Iowa tax revenue, losses could range between $111 to $146 million. Federal aid could cushion that blow a bit.

“Could the rest of the economy grow substantially and offset these losses? It’s possible,” Crespi said. “But don’t forget recessions will happen again. One hundred million dollars might seem affordable when times are good, but when times are bad, that’s when the tough decisions have to be made.”

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