Iowa will see 'hits across the board' as trade war with China escalates
An escalating trade war between the U.S. and China will hit two key parts of Iowa's economy — farming and manufacturing.
And the timing is terrible.
China said Monday it will levy tariffs of up to 25 percent on pork, ethanol and dozens of other products that would hammer Iowa'sag economy as it struggles to get out of a lingering downturn.
"It's going to make a bad situation worse for agriculture," said David Swenson, an Iowa State University economist.
And President Donald Trump's threatened tariffs on foreign steel and aluminum would hit Iowa manufacturing as it's getting back on its feet.
Manufacturers in February employed close to 224,000 Iowans, the largest number of workers since the 2008 recession.
The hit to manufacturing will be compounded since much of Iowa production is tied to agriculture.
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Farm equipment produced in Iowa includes John Deere tractors and sprayers, Vermeer balers and Kinze planters.
The state also is home to seed giant Pioneer, the Johnston-based company owned by DowDuPont's Corteva Agriscience.
"You're going to see hits across the board," including job losses, said Chad Hart, an ISU agriculture economist.
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"This will reach across Iowa, because it's impacting both manufacturing and ag sectors," Hart said. "That will hit the state economy. That will hit the state government."
Gov. Kim Reynolds last month approved $35.5 million in budget cuts needed to balance the budget.
"We'll feel it, whether we're in Des Moines or rural Iowa," Hart said.
'We are the world's grocery store'
Manufacturing was the second-largest driver of Iowa's economy in 2016 after financial services. And it's the fourth-largest employer.
Iowa is a leading national producer of corn, soybeans, pigs, cattle and eggs.
Agriculture "has been buffeted with low prices and low income for four or five years," Hart said. "A tariff hit now exacerbates a problem that the industry has already been wrestling with."
Ag leaders hoped to improve commodity prices by expanding trade.
"We are the world's grocery store," Hart said. "We produce more corn, more soybeans, more pork, more beef than we can consume. We rely on selling it to the rest of the world."
Low commodity prices already have triggered dramatic consolidation within the agribusiness industry, resulting in thousands of jobs lost nationally.
Big mergers include Dow-DuPont, ChemChina-Syngenta and Bayer-Monsanto.
Swenson said the pork tariff could hurt jobs at Iowa's pork processing plants in towns such as Storm Lake, Sioux City, Council Bluffs and Perry.
Steel prices are already climbing for manufacturers.
Sukup Manufacturing, whose 600 employees make grain bins and dryers in rural Iowa, said last month that steel prices had climbed 25 percent.
Though the company sources its steel from U.S. mills in places like Indiana and Pennsylvania, CFO Steve Sukup expected demand for American-made steel to drive prices up if steel imports face a new tariff.
“All our products incorporate steel, so it hits at the heart of our base material,” Sukup said. The manufacturer uses 1 million pounds of steel each week.
He worried how a trade war could curb demand for Sukup products among farmers and ranchers.
Higher steel prices drive up the costs of Iowa and other U.S. products.
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"If you're talking about raising the cost of producing products ... it slows income-growth down in the business," Hart said.
"What do businesses often do in that situation? Look to control or reduce costs," often through layoffs, he said.
'It's not a tipping point'
Overall, the state's economy should be able to withstand the blow, with financial and business services, construction and other industries growing, Swenson said.
He expects Iowa's already slow-growing economy will grow a little slower. "It's not a tipping point," he said.
The looming trade war already had Iowa farmers worried.
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An economist said last week that pork producers in Iowa had already lost about $240 million due to price declines as China threatened to retaliate against U.S. with tariffs.
Mexico, Hong Kong and China, Japan and Canada are the nation's top export markets for U.S. pork.
The Chinese market alone purchased about $1.1 billion in U.S. pork last year, according to the U.S. Meat Export Federation.
Trump said last month he planned to impose tariffs on $60 billion worth of Chinese technology and telecommunication products.
He had previously proposed tariffs on steel and aluminum.
MORE VIEWS FROM AROUND IOWA:
- State Rep. Jake Highfill, R-Johnston: Trump's tariffs won't promote U.S. industry
- Rep. David Young: Trump's tariffs are bad for Iowa
- Bill Horan, north-central Iowa farmer: Trade wars will be painful for Iowa agriculture
- David Frankel, associate professor of economics at ISU: Why Trump's tariffs could do little to boost jobs
Ethanol on China's tariff list
Ethanol producers, too, are on the Chinese tariff hit list.
The country will increase an existing 30 percent tariff on the fuel by an additional 15 percent.
Iowa leads the nation in ethanol production, shipping out a record 4.2 billion gallons of the renewable fuel last year.
About half of Iowa's corn production is used to make ethanol and dry distillers grain, a feed for livestock.
Hart said he's concerned about trade tariffs escalating into other products, especially soybeans, a leading Iowa crop.
China, with a population of more than 1.4 billion, imports about 60 percent of global soybean production.
About 40 percent of China’s soybean imports come from the U.S. and are valued at $14 billion, the Iowa Soybean Association said.
— Des Moines Register reporter Kevin Hardy contributed to this story.