Ag Policy Blog

The news releases and statements on tariffs are starting to become repetitive at this point.

Farmers need trade, not tariffs. They need trade, not aid.

None of that is slowing down the escalating trade rhetoric, or the impact on markets. The White House announcement late Monday that President Donald Trump wants his trade ambassador's office to find another $200 billion in Chinese products to hit with a 10% tariff.

The American Soybean Association noted Monday that soybean prices have fallen $1.50 a bushel since the end of May. The high price for the November soybean contract was May 29 when soybeans topped $10.60 a bushel. The price decline since then, on DTN charts, looks something akin to the North Ridge of K-2. It closed Tuesday at $9.11 a bushel.

"That represents a loss of more than $6.0 billion on the 2018 soybean crop in less than a month," said John Heisdorffer, an Iowa soybean grower and president of ASA. "We have approached the Trump Administration repeatedly and implored them to hear our side of this story.”

The July soybean contract closed at $8.89 on Tuesday, the first day it has closed under $9 since March 2016.

U.S. Wheat Associates and the National Association of Wheat Growers cited Chinese buyers purchased an annual average of 1.1 million metric tons (40.4 million bushels) of wheat over the past five years. No one in China will be hurt if retaliatory tariffs go into effect. China already has wheat stocks and there are several other international markets to fill the void. "Instead, the outcome is likely to further erode the incomes of farm families who strongly support addressing the real concerns about China’s trade policies," the wheat groups stated.

The wheat groups said farmers recognize the problems with China right now and they support the World Trade Organization case against China that was brought in 2016. But tariff policies risk losing markets "and the Administration's vague promises of protection for the farmers we represent offers little consolation."

The wheat groups concluded their America's farmers can compete if they are allowed to do so.

Sen. Charles Grassley, R-Iowa, was at a loss on a weeklypress call. Several agricultural products are already will face 25% higher tariffs on July 6 in China if nothing changes, Grassley noted.

"It would be nice if we don't go this route. I'm kind of scared for agriculture," the senator said. "Most Americans acknowledge there are problems with the current trade situation. We have low tariffs and open markets while other countries limit our market access through tariffs and non-tariff trade barriers."

Grassley said he expected to hear more details about trade on Wednesday when Commerce Secretary Wilbur Ross will appear before the Senate Finance Committee. More tariffs on $200 billion in consumer groups will impact more industries going forward as well.

Grassley sounded caught between representing Iowa and agricultural interests, while not directly criticizing President Trump or his tariff strategy. The senator reiterated the president's view that China has more to lose than the U.S., though Grassley pointed out China is now the world's second-largest economy.

"I'm just expressing the political reality of a president that is as determined as he is to move ahead and that we can eventually win," Grassley said. "And don't mention the words 'trade war' to him because he says we've had a trade war for decades and America lost."

The senator added, "In turn I guess you would say that you hope he's (the president) got a smart strategy but right now I can't say that." He added, "If it does work, then we are going to be better off for the economy as a whole and maybe agriculture as well."

All people in agriculture can do is to continue to let Trump know how bad tariffs are for their sector, although Associated Press quoted White House advisor Peter Navarro on Tuesday stressing that Agriculture Secretary Sonny Perdue continues working on provisions to protect farmers and others from a market decline.

Responding to that, Grassley said, "It's unclear how that would be done. I can hold Perdue to his statement that he could do it, but I can also say that isn't what my farmers in Iowa want -- some help from the federal Treasury."

This was expressed at a meeting by GOP lawmakers and governors with Trump in May.

Then Grassley, former chairman of the Senate Finance Committee, as asked about his experience with trade. "What is the history of tariffs and trade wars as a strategy to level the trade playing field? Do tariffs work?" Grassley went back to the 1930 Smoot Hawley Tariff Act, which prompted retaliatory tariffs and cut U.S. trade in half during the 1930s -- the time of the Great Depression. Grassley's response:

"I know all about Smoot-Hawley, even though I was born two years later. From history, I think we have a different world environment now that you don't necessarily compare the same things that happened in 1930 with what happens now, but if you want to know what happened with Smoot-Hawley, it shut down world trade, brought about the Great Depression, brought about Adolph Hitler because people in Germany were unemployed," he said. "There were a lot of problems before Smoot-Hawley and Germany, but it brought Hitler. And you know Hitler started World War II and 60 million people lost their lives."

The senator added, "Even before Hitler there was a realization that Smoot-Hawley was wrong. So in the 1930s, they passed the reciprocity act that the president had the authority that any country that reduces barriers we would do the same thing on an equal basis. The word reciprocity speaks for itself. Then that went on through World War II. In 1947, we set up the General Agreement on Tariffs and Trade. And that was the formula for most free-trade agreements until 1993 when the World Trade Organization as set up with more dispute resolution process.

"So I think we're in a different environment. We all know the importance of trade. Every country is involved in trade, every country wants to trade so I wouldn't compare it to Smoot-Hawley but it's still a very nervous situation when we're used to the last 70 years of relatively peaceful trade throughout the world. And we know what happens when tariffs are increased or you have non-tariff trade barriers and there's retaliation and it's going to hurt agriculture. It's going to hurt Iowa tremendously."

Grassley quoted a figure in the Des Moines Register that the tariffs will cost Iowa farmers $624 million. That came from an Iowa State University economist estimate of losses. https://goo.gl/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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