How Trump's tariffs could hurt Iowa businesses and farmers

As President Donald Trump plans to roll out new tariffs on foreign steel and aluminum, businesses and farmers in Iowa are bracing for the fallout from an international trade war.

Iowa's agricultural market depends heavily on trade with growers sending corn, soybeans and meat across the world. And factories in all corners of the state depend on global trade to both obtain supplies and sell products.

At a legislative breakfast over the weekend, Republican Congressman Steve King told northwest Iowa residents that he opposed Trump’s steel and aluminum tariffs because of what they could do the agricultural market.

“It will be the '80s all over again,” he said, referencing the 1980s farm crisis that put 10,000 Iowa farms out of operation.

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The president imposed a 10 percent tariff on imported aluminum and a 25 percent tariff on imported steel at a White House event Thursday. He argues that such a move would protect American metal producers and keep countries like China from dumping below-cost products into the U.S. market.

Trump formalized the tariffs Thursday afternoon, but pledged to offer "great flexibility" with the new levy. He will exempt neighboring Canada and Mexico while his administration seeks to negotiate a new North American trade agreement. And he said he may exempt Australia and other nations from the tariff in the future, he said.

"We just want fairness," Trump said. "We want everything to be reciprocal. And I think in the end, we’re going to have a lot of great jobs, great companies all coming back into our country.”

Republicans and Democrats urged him to reconsider, fearing retaliation from countries across the globe that purchase American-made products and higher prices for U.S. consumers that buy items made with steel and aluminum.

The entire Iowa congressional delegation wrote to the president Wednesday urging him not to impose the steel and aluminum tariffs. The letter said "tariffs are a tax on families and hardworking Iowans cannot afford a trade war."

The state economy is heavily dependent on the 3,000-plus factories that dot the state: Iowa is among the top ten states in the nation for its proportion of the workforce employed in factories and the share of gross state product derived from manufacturing, according to the National Association of Manufacturers.

Sukup Manufacturing, whose 600 employees make iconic grain bins and dryers in rural Iowa, uses 1 million pounds of steel each week.

"That’s what we do. We do welding and rolling of steel," said CFO Steve Sukup. “All our products incorporate steel so it hits at the heart of our base material.”

Sukup said the president has been "doing fantastic" otherwise, by passing federal tax cuts and reducing factory regulations.

"This just seems to be a step backward," he said. "I had hoped he would take a broader view of the economic impact, instead of just pushing an increase through on all manufacturing."

Though the company sources its steel from U.S. mills in places like Indiana and Pennsylvania, the CFO expects demand for American-made steel to drive prices up if steel imports face a new tariff. And he worries how a trade war could curb demand for Sukup products among farmer and rancher customers. And steel prices have already inched up by 25 percent in the last 90 days, he said.

"I really hope the administration pulls back from this," Sukup said. "There hasn’t been a trade war we’ve won. And we have the most to lose from it."

U.S. Agriculture Secretary Sonny Perdue said Trump’s steel and aluminum tariffs might land the U.S. a more favorable trade deal.

"President Trump is a unique negotiator. Sometimes, he keeps people off balance. Even his own staff. He certainly did that this last week," said Purdue, who was in Des Moines Tuesday to swear in Iowa’s former ag secretary as a federal under secretary in the USDA.

But farmers worry that big ag trade partners will retaliate, slapping tariffs on Iowa-grown corn, soybeans, pork and beef. Iowa leads the nation in corn production and is behind only Illinois in soybean production.

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Iowa’s ag economy, already struggling from low commodity prices, is hugely dependent on global trade. Farmers and business leaders are already on edge about the president’s repeated threats to rip apart the North American Free Trade Agreement. Estimates predict Iowa could shed up to 138,000 jobs if the trade agreement were terminated.

Trump's decision to hold off on imposing the tariff in North American countries will no doubt provide some relief for Iowa farmers: Nearly half of Iowa’s exports — $5.6 billion worth — go to Canada and Mexico, according to the U.S. Chamber of Commerce.

Though three-quarters of Iowa soybeans are ground into animal feed, national soybean production on the whole still largely relies on export markets. In 2016, about 60 percent of all American-grown soybeans or 2.6 billion bushels were exported, according to the United Soybean Board. Nearly 30 percent of soybean exports went to China.

"We grow way more than we consume," said Grant Kimberley, director of market development for the Iowa Soybean Association. "So we have to export it."

While Trump has railed against trade deficits, Kimberley noted that strong overseas markets deliver U.S. agriculture a trade surplus.

Agriculture "has been the shining example of a U.S. trade surplus, which is what the president says he wants," he said. "And its future is being threatened."

Iowa’s soybean producers have built up overseas markets over the years. And Kimberley says threatening that progress at a time of thin farm profits.

"There’s more uncertainty. That’s the bottom line," he said. “We have been in a downturn in the agricultural economy. "So this kind of thing doesn’t help improve our optimism about what lies ahead in the future."

Kimberley hopes former Iowa Gov. Terry Branstad, now the U.S. ambassador to China, can persuade Trump to reconsider. With deep understanding of Iowa’s ag roots, Branstad has previously favored trade agreements.

"My hope is people can come to the table," Kimberley said, "and this crisis can be diffused."

Aside from triggering retaliation, the steel and aluminum tariffs could increase the prices farmers pay for necessary equipment like tractors and combines, said Iowa Corn Growers Association President Mark Recker.

"Agricultural trade has been a bright spot for U.S. economy, positively impacting our overall trade balance, while providing an important avenue to grow demand for America’s farmers and ranchers," Recker said. "…We are hopeful that the Trump Administration will carefully consider the implications these tariffs may have on America’s agricultural sector."

Debi Durham, director of the Iowa Economic Development Authority, said the nation must take targeted action against countries not fulfilling trade obligations. And she advocated for modernizing trade agreements, not making wholesale changes.

"Sweeping statements about tariffs and trade agreements create unpredictability in the marketplace and could negatively impact key industries in our state,” Durham said in a statement. “Right now, we are seeing businesses start to reinvest in America and Iowa is well positioned to be part of that growth. Our economic development efforts require strong global relationships.”

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