Chinese soybean tariff would hit Iowa's economy hardest, new report says

Donnelle Eller | The Des Moines Register

Show Caption Hide Caption Aerial view of soybean harvest near Kellogg, Iowa Roger Zylstra harvest soybeans on his farm near Kellogg, Iowa, in 2017, working into the night to catch up after a wet week.

China's proposed tariff on soybeans would hit Iowa's economy the hardest nationally, even though the state is not the largest U.S. soybean grower, a new report says.

Moody's Investors Service said Iowa exported nearly $2 billion in soybeans to China in 2016, making up about 4 percent of the state's economy — the largest exposure of any state in the nation.

"Iowa runs a close second to Illinois in soybean production but has much more economic exposure to the crop," the report said.

China is the largest buyer of U.S. soybeans, purchasing $14 billion of the commodity last year.

The country has proposed 25 percent tariffs on $50 billion of U.S. products, including pork, soybeans, corn and beef, in response to President Donald Trump's proposed tariffs on Chinese steel, aluminum and electronics, among other products.

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Missouri's exposure to the tariffs ranks second nationally, Moody's said, with soybeans sold to China contributing about 1.1 percent to Missouri's gross state product.

Illinois produced the most soybeans in 2016 — as well as last year — but only about 1 percent of Illinois' economy comes from soybean exports to China, the report showed.

The tariffs would be bad news for Iowa's budget, which has mirrored the state's farm economy in recent years.

"I say with a lot of confidence that it’s not going to be good for state revenues. But I can't say how bad it's going to be," said Marcia Van Wagner, the Moody's vice president and senior credit officer. "It will have a depressing effect on agriculture."

Iowa's farm income has already fallen about 74% over the past five years to $2.5 billion in 2016.

"The state has grappled with overly optimistic revenue forecasts, draws on its rainy day fund and midyear budget adjustments, including $35 million in cuts implemented this spring," the credit rating agency said.

And the Iowa Legislature recently passed a tax reform package, estimated by legislative staff to result in net revenue reductions of $100 million in fiscal 2019, growing to $642 million by fiscal 2024.

Chad Hart, an Iowa State University economist, said farm income has stabilized, "and my hope is that it would stabilize the state economy as well."

"But if the tariffs truly do hit, then we'll see another step down in farm income... and that would eventually show up in state revenue," he said.

The Moody's report comes as China is cancelling U.S. soybean shipments.

In April, China canceled nearly 200,000 metric tons of U.S. soybean purchases of last year's crop.

Hart and other ISU economists have said China is concerned about a tariff hitting while U.S. soybean shipments are in transit.

Instead, China is buying soybeans from this year's harvest, which is being planted now, hoping the countries will have resolved their trade disputes.

Last month, China purchased 387,000 metric tons of U.S. soybeans for the market year that begins Sept. 1.