Trump's trade wars come with $400K bill for one Kentucky soybean farmer

Andrew Wolfson | Courier Journal

Show Caption Hide Caption Soybean farmer hopes tariffs will benefit business long term Soybean farmer Ryan Bivens hopes tariffs will benefit his business in the long term, but is expecting some short term pain

Chinese tariffs on soybeans could cost Kentucky farmers $200 million this year

The total value of exports from Kentucky at risk from retaliatory tariffs is $1.535 billion

Kentucky steel and aluminum makers have benefited Kentucky businesses like Century Aluminum

Kentucky's $263 million in tobacco exports are also at risk.

In a tweet last month, President Donald Trump exulted that “tariffs are the greatest!”

“Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs,” he said. “It’s as simple as that. … All will be Great!”

But don’t tell that to Ryan Bivens and his wife Misty, who grow soybeans on 3,000 acres in Kentucky's LaRue and Hardin counties.

They stand to lose as much as $400,000 this year as a result of the tit-for-tat trade war in which China, responding to U.S. tariffs on steel and aluminum, has retaliated with levies of its own on $44.9 billion worth of U.S. goods – including soybeans.

The move by China, which buys nearly a third of the U.S. soybean crop, has driven down prices by 20 percent and could cost Kentucky’s 4,000 soybean farmers $200 million this year, according to the Kentucky Soybean Association.

Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that - and everybody’s talking! Remember, we are the “piggy bank” that’s being robbed. All will be Great! — Donald J. Trump (@realDonaldTrump) July 24, 2018

The exact cost of the ongoing trade war to Kentucky has yet to be calculated. But the U.S. Chamber of Commerce says the total value of exports from Kentucky at risk from retaliatory tariffs is $1.535 billion and involves 539,000 jobs. The exports include everything from aluminum waste and bourbon to postcards and steel tanks.

Uneven impact

Soybean farmers like Larry Thomas, president of the soybean association, agree the U.S. had to take some action on unfair trade, but they question the president's method.

“China has been cheating on our trade deals for decades and we needed to do something,” he said. "But I don’t know that tariffs were the right answer.”

The U.S. Chamber of Commerce and its Kentucky counterpart say emphatically that they are a mistake.

Highlights: Seven things you may not know about Kentucky's biggest exports

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Tariffs are "nothing more than a tax increase on American consumers and businesses, including manufacturers, farmers and technology companies, who will all pay more for commonly used products and materials," said Ashli Watts, a spokeswoman for the Kentucky chamber.

“The whole situation is disheartening and pretty scary for our members,” she said. “We know that trade works and tariffs don’t."

Added David Tatman, former manager of General Motors’ Corvette plant in Bowling Green and now executive director of the Kentucky Automotive Industry Association, which represents 500 auto plants statewide: “We are all for a level playing field, but not if the cure is worse than the disease.”

Not all industries in Kentucky are suffering.

Kentucky steel and aluminum makers are reveling in the levies, which were imposed in March after the U.S. Commerce Department concluded that subsidized, unfair competition from foreign rivals posed a national security threat to those industries.

The 25 percent tariffs on steel and 10 percent on aluminum, which ignited the worldwide trade war, have driven up the price of those commodities, much to pleasure of Chicago-based Century Aluminum, the nation’s largest producer after Alcoa Corp.

Century says it is adding 300 jobs and $150 million in technology upgrades at its smelter in Hawesville, on the Ohio River about 80 miles southwest of Louisville, as it ramps up production on previously idled lines. The company says it will host a "ceremonial restart" at the Hawesville smelter on Aug. 22 with U.S. Commerce Secretary Wilbur Ross.

“The aluminum tariffs have been very good for Century and very good for Hawesville,” said Jesse Gary, Century’s executive vice president and general counsel.

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Hancock County Judge-Executive Jack McCaslin is withholding judgment. He said he expects it will take six to 12 months for the smelter to reach full employment.

Hawesville Mayor Charles King said, "I can't say tariffs have helped or hurt yet."

The company has praised Trump for saving the American aluminum industry from illegally subsidized imports, which Gary said cost it thousands of jobs and millions of tons of production.

What about businesses and employees who have been hurt by retaliatory tariffs?

“That’s a question for the administration,” Gary said.

Kentucky companies that make products with aluminum and steel have suffered because they have to pay higher prices for raw materials. They include businesses like Louisville’s Schuler Manufacturing, which calls itself “Men of Steel” and manufactures loading equipment for General Electric, Ford, UPS and FedEx.

Owner Kevin Schuler said that he has quoted jobs only to see the prices of raw materials escalate.

“Some customers work with you,” he said, “but others hold your feet to the fire.”

He also said price quotes from metal suppliers – once good for 30 days – are now only good for 24 hours, making it harder to plan.

Playing the long game

With the impact of tariffs mixed in Kentucky, the Bevin administration has stayed on the sidelines.

“Our perspective is it’s important to remember this situation on tariffs overall is likely a long-term process, driven at the federal level,” said Jack Mazurak, communications director for the state Cabinet for Economic Development. “We’re in the middle of it now and nothing is certain or resolved yet, so the situation calls for patience and a longer-term point of view.”

Gov. Matt Bevin told Bloomberg in June that he didn’t think Kentucky’s $8.5 billion bourbon industry would be significantly harmed by a retaliatory tariff imposed by the 28-country European Union because “people still love bourbon” and would pay more for it.

But industry experts, including Eric Gregory, president of the Kentucky Distillers’ Association, said European customers could trade down to a cheaper brand or buy one bottle instead of two.

Bourbon blogger and consultant Michael Veach said the biggest impact will be on smaller brands trying to get a foothold in the European market or looking to grow sales in China.

Exports are a small portion of overall sales at the Buffalo Trace Distillery in Frankfort, where spokeswoman Amy Preske said that without knowing how long tariffs will last it would be premature to comment on their impact.

Brown-Forman Corp. CEO Paul Varga said the Louisville-based spirits maker may be a victim of EU tariffs. The company has warned that it might have to raise prices on Jack Daniel’s and other brands by 10 percent.

But because it stockpiled products in Europe before the tariff went into effect, the company hasn’t had to raises prices yet, spokesman Phil Lynch said.

“The short answer is it is too soon to know the impact yet,” he said.

But the potential harm is so significant that executives of the world’s top global whiskey associations met in Louisville last month and unanimously approved a resolution calling for world leaders to... "work together, over a glass of whiskey or their favorite non-alcoholic beverage" to end tariffs and work for free trade.

Background: Whiskey industry executives to meet in Louisville over trade conflicts

The biggest shoe waiting to drop locally may be at Swiss-based chemical producer Clariant, which has more than 400 employees at three production facilities in Louisville, including one at 1600 W. Hill Street.

The company’s site manager disclosed at a community advisory meeting that it may move a significant amount of its production overseas because of uncertainty over tariffs.

Clariant spokeswoman Jodi Cohen, who is based in Charlotte, North Carolina, confirmed the move may be required to remain competitive but said no decision has been made.

Kentucky's $263 million in tobacco exports – including both raw tobacco and cigarettes – are also at risk. B. Todd Bright, a spokesman for the Kentucky Farm Bureau, said it is difficult to estimate the economic impact of the tariffs because neither harvest nor marketing season is complete. But he said the Farm Bureau supports "fair and open multilateral trade agreements that will open new markets and expand existing markets for U.S. agricultural products.”

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Some Republicans have criticized the Trump administration’s tariffs, saying retaliatory levies on U.S. farm products like soybeans, beef, corn and poultry have hurt American farmers and other business owners.

The U.S. Department of Agriculture last month announced it would offer $12 billion in emergency aid for farmers, but Kentucky soybean producers, like Thomas and Bivens, say that is not a long-term solution.

The state's congressional leaders agree.

“If tariffs punish farmers,” Sen. Rand Paul tweeted July 24, “the answer is not welfare for farmers – the answer is to remove the tariffs."

Senate Majority Leader Mitch McConnell also has said tariffs will hurt Kentuckians and slow recent gains in the economy.

“Nobody wants a trade war,” McConnell said in a July 13 news conference on the steps of the Gene Snyder U.S. Courthouse in Louisville.

But while McConnell voted for a non-binding resolution calling for additional congressional oversight on tariffs, he opposed a bill that would have reined in Trump’s tariff authority.

"We're not going to be, in the Senate, passing a bill preventing the president from what he can legally do under current law," McConnell told Fox News. On Sirius XM, The Hill reported, McConnell said such legislation would be an "exercise in futility."

Andrew Wolfson: 502-582-7189; awolfson@courier-journal.com; Twitter: @adwolfson. Support strong local journalism by subscribing today: www.courier-journal.com/andreww.

What’s a tariff?

Tariffs are used to restrict imports by increasing the price of goods and services purchased from overseas and making them less attractive to consumers.

Governments may impose tariffs to raise revenue or to protect domestic industries from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestic goods more attractive. By protecting these industries, governments may also protect jobs.

But tariffs can hurt consumers because a lack of competition tends to push up prices. They also can generate tensions by favoring certain industries over others.

Pressuring rival countries with tariffs can devolve in endless cycles of retaliation known as a trade war.

How did President Trump impose tariffs without Congressional approval?

The Trade Expansion Act of 1962 allows the president to impose tariffs without a vote by Congress if the Department of Commerce declares a national security threat from foreign imports.

The law doesn’t define “national security” but Commerce — led by Secretary Wilbur Ross, a former steel tycoon — found that a weakened steel industry would be less ready to build tanks and other weapons if a military crisis arose.

From 1973 to this year, national security was invoked only five times to impose a tariff, all on oil imports.

Sources: Bloomberg, Investopedia

How much could retaliatory tariffs hurt the U.S.?

Counter tariffs have been imposed by Canada, China, the European Union, Mexico, Russia and Turkey.

The Tax Foundation, the nation's largest independent nonprofit tax policy group, says retaliatory tariffs will reduce the gross domestic product by $12 billion and cost 38,376 jobs through the end of 2018.

Tit for tat: Tariffs and retaliatory tariffs imposed this year:

June 22: Trump approves $8.5 billion in tariffs on solar panels and $1.5 billion on washing machines.

March 23: Trump announces tariffs of 25 percent on steel and 10 percent on alumumium.

April 2: China imposes retaliatory tariffs on U.S. aluminum waste, fruit and nuts.

June 19: China announces tariffs on $44.9 million in U.S. exports, including soybeans, sorghum, meat, chemicals and medical equipment.

June 22. European Union imposes retaliatory tariffs on U.S. steel, aluminum, bourbon, motor boats and yachts, motorcycles, denim jeans, corn and peanut butter.

July 1: Canada imposes tariffs on $12.8 billion in U.S. goods.

July 6: The U.S., finding that China engaged in unfair trading practices involving technology and intellectual property, imposes 25 percent tariffs on 1,333 Chinese products valued at $46.2 billion.

July 20: Trump threatens to impose tariffs on all U.S. imports from China, which totaled $504 billion last year.

Aug. 8: China announces a 25 percent charge on $16.6 billion worth of 333 U.S. products, including large passenger cars and motorcycles.

Source: Peterson Institute for International Economics

Kentucky Exports to the World: Seven things to know:

Kentucky in 2016 exported $29.2 billion in goods abroad, supporting an estimated 140,000 jobs.

Kentucky in 2016 was the 17th largest exporter of goods of the 50 states.

Exported goods accounted for 14.2 percent of the state's gross product in 2016.

The most valuable products were vehicles and other transportation equipment ($16.3 billion); chemicals ($4.2 billion; computer and electronic equipment ($1.6 billion; and machinery ($1.5 billion).

4,476 companies exported from Kentucky in 2015

The state's largest market in 2015 was Canada, following by the United Kingdom, France, Mexico and Brazil.

Kentucky was the nation's 20th largest agricultural export state, shipping $2.1 billion in goods in 2015. Leaders were soybeans, $426 million; livestock, $404 million; and tobacco, $263 million.

Source: Office of the U.S. Trade Representative