WASHINGTON (DTN) -- Another level of uncertainty was injected into agricultural commodities on Thursday as President Donald Trump moved ahead Thursday with proclamations to impose global tariffs on steel and aluminum imports despite warnings from much of the business community and lawmakers in Congress.
Standing with members of his cabinet and steel workers, the president signed a pair of proclamations setting a 25% tariff on steel and a 10% tariff on aluminum. For now, Canada and Mexico would be exempted from those tariffs pending the outcome of the current renegotiation of the North American Free Trade Agreement. The president said at a cabinet event regarding Canada and Mexico, "We're going to be quite flexible."
Leaders from the American Soybean Association said that the measures could likely lead to retaliation by affected countries. Soybean exports are a prime target given their prominent role in U.S. agricultural trade. ASA President and Iowa farmer John Heisdorffer said it's wrongheaded to take an action to prop up one domestic industry while cannibalizing agricultural trade.
"These tariffs are a disastrous course of action from the White House. They may lead to retaliation by one or more of our valuable trading partners, which in turn will kneecap demand for soybeans in a time when the farm economy is struggling," said John Heisdorffer, an Iowa farmer and president of ASA. "We have heard directly from the Chinese that U.S. soybeans are prime targets for retaliation. The idea that we're the only game in town, and these partners have no choice but to purchase from the U.S., is flatly wrong. Our competition in Brazil and Argentina is eager to capitalize on whatever openings these tariffs create for them in markets like China and elsewhere."
The Trump Administration relied on a little-used national security clause known as Section 232 to advance the argument that the steel and aluminum imports harm national security. And economic security of the U.S. Agricultural groups last summer had warned the White House that using Section 232 would open a "Pandora's Box" on trade that would jeopardize the agricultural economy.
The U.S. Grains Council, pointing to large stocks and low prices, said the trade talks -- including NAFTA and South Korea -- are creating even more uncertainty in the markets U.S. grains rely upon.
"The U.S. grains and biofuels sectors are at a critical moment in our history," said U.S. Grains Council President and Chief Executive Officer Tom Sleight. "Trade policy complexity has been a part of our work for a half-century, but we are facing an unprecedented amount of uncertainty, even while overall demand is growing."
Lawmakers from agricultural states also reacted negatively to the tariff news. Senate Agriculture Committee Chairman Pat Roberts, R-Kansas, a veteran of more than a couple tariff disputes, called Trump's tariffs "a tax on consumers." Roberts added, "As we have seen in past cases of increased tariffs, higher manufacturing costs will inevitably be passed down the supply chain, forcing consumers to bear these costs."
Roberts said he agreed action should be taken to deal with overcapacity of steel and aluminum, but using the Section 232 national security argument would have detrimental consequences to the U.S. economy. "The proposed tariffs would nullify the positive gains created by the recent tax reform package passed by Congress," Roberts said.
Sen. Joni Ernst, R-Iowa, was among the first calling on the president to reverse the actions. "I am urging the President to reconsider this proposal, not just for its impacts on Iowa, but for the negative consequences this proposal could have on rural communities throughout the nation, America's farmers, and our national security."
Trump met with leaders in the steel industry when the proclamations were signed.
The president also said he would have the flexibility to raise and lower those tariffs country-by-country as needed. The president also suggested he could also create a carve-out for Australia.
"I'll have a right to go up or down depending on the country," Trump said.
The tariffs caused an internal rift in the White House, leading economic adviser Gary Cohn to resign while another adviser, Peter Navarro, a trade protectionist, became more visible this week with television appearances defending the president's actions. Navarro said earlier in the week the U.S. actions would ideally force change in the way the U.S. is treated by the World Trade Organization.
"The best-case scenario is the world wakes up to the fact that we're not going to take it anymore," Navarro said on NBC's Meet the Press. "We want fair and reciprocal trade, and the World Trade Organization needs to adapt accordingly."
Trump imposed the tariffs despite 107 Republican lawmakers sending him a letter on Wednesday asking the president to reconsider his plan. The congressmen wrote the letter "to express deep concern" about the tariffs. The congressmen said tariffs are taxes that make U.S. businesses less competitive and any tariffs should be constructed in a way that minimizes the impact on businesses and consumers. Further, specific congressional delegations such as Iowa and Missouri also sent letters to the president expressing worries about specific impacts on their individual states.
China is the largest exporter of steel, and a target of the White House ire for dumping steel on the global market. Still, Canada is the largest exporter of steel to the U.S., accounting for 16% of imports and Brazil is the second-largest steel exporter to the U.S. at 13% of all imports. South Korea also exports 10% of U.S. steel imports while Mexico and Russia each send 9%, according to a report Thursday by the New York Times.
Other agricultural groups have expressed varying levels of fear over retaliation. "These tariffs are very likely to accelerate a tit-for-tat approach on trade, putting U.S. agricultural exports in the cross-hairs," said Brian Kuehl, executive director of Farmers for Free Trade, in a statement. "Already we have seen China discuss tariffs on sorghum. The EU and China have also indicated they will move forward with swift retaliation in the wake of these tariffs."
European Union officials on Wednesday threatened to impose counter-tariffs against the U.S. for as much as $3.52 billion in value on goods, including roughly $1 billion in agricultural imports from the U.S.
Agriculture Secretary Sonny Perdue has been among those expressing concerns about retaliation against agricultural products. He also said on Wednesday that retaliation isn't the only concern for agriculture.
"As you know, farm equipment is manufactured with steel and aluminum and we're concerned about not only retaliation but also the costs of other inputs as we go forward," Perdue said.
Chris Clayton can be reached at Chris.Clayton@dtn.com
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