Wednesday, April 4, 2018

Tariffs intended to help small-town Midwest factories might kill small-town Midwest farms

Wild ride on Wall Street, where the DOW Jones started the day down 500 and ended up 230. Why the major swings? Because the professional gamblers on Wall Street were making different bets based on what they thought would happen with President Trump's tariffs, and the resulting retaliation from other countries.
Shares of manufacturers and machinery companies initially came under pressure after China unveiled plans for a series of retaliatory tariffs on American goods. But stocks erased those declines in afternoon trading, as some analysts said knee-jerk selling on worries that protectionist trade policies could slow global economic growth might have been overdone....

Despite initial unease that trade policies could result in higher costs for manufacturers of everything from computer chips to smartphones, some investors said the tariff announcements seem more like negotiating tactics.

“When people think about it a little bit more, they think it’s not done yet, it’s not played out and it’s only affecting a small part of the economy,” said Thomas Martin, senior portfolio manager at Atlanta-based Globalt Investments. “You do have a lot of skittishness in the market, and people wanting to be on top if there is a change.”...

China’s tariffs would place 25% duties on major U.S. exports to China including airplanes, autos and soybeans, covering 106 categories of products and affecting $50 billion of goods. The announcement came shortly after the Trump administration unveiled plans to impose tariffs of 25% on Chinese products worth $50 billion in addition to the levies introduced on steel and aluminum last month. Retaliatory Chinese levies on U.S. pork and fruit went into effect earlier this week.
While I don’t mind the idea of US tariffs as a way of leveling the playing field for wages and working conditions with some US trade partners, especially as a means of keeping manufacturing in the country, one area that seems likely to suffer in America is agriculture, which exports much of our products to other parts of the world.
China is the dominant consumer of U.S. soybeans, purchasing about 1 billion bushels annually. That accounts for about 60% of total U.S. soybean exports and more than 30% of overall U.S. soybean production.

John Heisdorffer, President of the American Soybean Association expects the tariff on soybeans to have a “devastating” effect on soybean farmers. Following the tariff announcement, CBOT May soybean futures dropped 3.9% to $9.9775 a bushel on Thursday morning.

“At a projected 2018 crop of 4.3 billion bushels, soybean farmers lost $1.72 billion in value for our crop this morning alone. That’s real money lost for farmers, and it is entirely preventable,” Heisdorffer said in a statement.

With the tariff, American soybeans will be less competitive in the international market, making the export business even harder as farmers already face headwinds from producers in South America. Besides the economic pressure, China also wants to leverage the agricultural products to move President Trump, who has a lot of supporters in the U.S. farm belt. The largest soybean producers in the U.S. are Illinois, Iowa and Minnesota.

Well, at least the lower prices will mute inflation in the country (yes, this is severe sarcasm. Deflation means bad things for pretty much anyone other than hoarders).
These might not be going anywhere soon

In all seriousness, this will likely lead to an increase farm failures in the Midwest, in a time when things are already tough for many farmers, as evidenced by Western Wisconsin leading the nation in farm bankruptcies last year.

While Wisconsin won’t be likely to suffer as much damage from the soybean levies put on by China (we grow some in S. Central Wisconsin, but not much elsewhere in the state), that doesn’t mean there won’t be problems in other areas. Wisconsin Public Radio mentioned one Wisconsin product in particular will be hit hard by those Chinese tariffs.
The 15 percent tariff on ginseng produced in the United States is a particular blow to central Wisconsin, which grows about 90 percent of the U.S. crop of the medicinal herb.

Eighty-five percent of that crop is exported to China, representing more than $30 million in sales to the state’s growers, according to the Ginseng Board of Wisconsin.

Will Hsu, vice president of Hsu’s Ginseng Enterprises, a Wausau-based company that is one of the largest growers and distributors in the U.S., said the tariff is cause for concern.

The Chinese market has been the most important market for this product for over 100 years"The Chinese market has been the most important market for this product for over 100 years," Hsu said. "That should be concerning to anyone who farms this product when we are dependent on export markets and consumers abroad purchasing this product."
These agricultural issues probably help explain why Ron Kind has been in favor of free trade to levels that go well beyond the typical Wisconsin Dem, because his part of the state relies on exports more than most other places. In addition, trade keeps crop prices higher because all of that produce isn’t flooding the market here.

If these moves make an already-shaky farm sector become flat-out depressed, it may be time for Mr. Mellencamp to update this classic from 1985.

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