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Mt. Pleasant News   Wash Journal
Neighbors Growing Together | Jun 23, 2018

How a trade war could hit Iowa

By Matthew Patane, The Gazette | Mar 08, 2018

An international trade war would be a “rolling disaster” for Iowa, two economists and an international business expert said this week.

“Iowa is a net loser in terms of any trade skirmishes, trade wars, abolition of NAFTA that are brought on by this tariff increase,” said Creighton University economist Ernie Goss, in Omaha, Neb.

President Donald Trump called last week for a 25 percent tariff on steel and one of 10 percent on aluminum imported into the United States. The proposal since has resulted in rebukes from members of his own party and other countries saying they’ll retaliate with their own set of tariffs on U.S.-made goods.

Trump’s chief economic adviser, Gary Cohn, resigned after failing to persuade the president not to push forward with the tariffs. U.S. financial markets reacted to the news with the Dow Jones Industrial Averages, the key benchmark companies, ending Wednesday down some 83 points.

Such a trade war, should it move forward, would mean price increases for consumers, possible layoffs or consolidation among Iowa employers, and exports from Iowa and the United States being replaced by those from other countries.

“Trust me, nobody wins in a trade war. The consumers are the ones that will pay the price,” said Dimy Doresca, director of the Institute for International Business at the University of Iowa.

 

‘WAY OUT ON THE LIMB’

The state’s production of corn, soybeans, pork and eggs could be targeted for retribution, said Dermot Hayes, an Iowa State University economist. The state already relies on international markets to sell those goods.

“In Iowa, we have about 10 crop acres for every person. The world average is about one-half of one acre,” Hayes said. “We’re way out on the limb in terms of our specialization in agriculture and our need to export those products.”

Iowa would be vulnerable in a trade battle because of its heavy reliance on exports and because food and agriculture are typically the “first casualties” in such as skirmishes, Creighton’s Goss said.

Iowa is the nation’s largest producer of corn, producing about 2.6 billion bushels in 2017 and 2.7 billion in 2016. The state’s top export in 2017 was corn.

While steel or aluminum producers in the state would benefit from Trump’s tariffs, any company that uses the imported metals to produce other products, such as agricultural equipment, would be hurt, Hayes and Goss said.

“If you take John Deere and assume that they were buying some of their steel from abroad, which I think is the case, then they would face a competitive (disadvantage) against those other tractor makers who were not paying those duties,” Hayes said.

While price increases for products may be the first noticeable effects of a trade war, all three said they view longer-term repercussions of payback from other countries and the loss of international markets as more consequential.

“There are producers out there that stand ready to replace the U.S. whether it’s corn, whether it’s soybeans, whether it’s wheat, whether it’s processed food. They stand ready to replace us almost instantaneously,” Goss said.

He pointed to Brazil and Argentina as possible replacements.

Doresca said retaliation from other countries would be the worst effect.

“Iowa has been doing really well by itself. But now, you have a federal government who is not cooperating, who is making things more difficult for us,” he said.

The European Union already has discussed potential U.S. products it could go after as part of retribution for the tariffs. The proposed list would target $3.5 billion in imports to Europe from the United States that includes motorcycles, bourbon, and corn, the Washington Post and Bloomberg reported.

“The fact that we voted for Trump is now coming back to haunt us because the retaliation lists are looking for places that voted for him,” Hayes said.

China is one of the countries that would be impacted by the tariffs. Former Gov. Terry Branstad, now U.S. ambassador in Beijing, hasn’t issued a statement on the matter, China Daily noted in an article on its website.

Iowa’s full Congressional delegation sent a letter to Trump Wednesday that asked him to reconsider the tariff proposal:

“We are concerned such a move could set into motion a chain of retaliatory measures, hurting Iowans from the family farm to the family-owned manufacturing plant. Tariffs are a tax on families and hardworking Iowans cannot afford a trade war.”

Iowa Gov. Kim Reynolds already has expressed concerns and warned that “unintended consequences” of the tariffs would be “devastating” for the state.

“Our farmers are the first target, and we know that’s where the unintended consequences will fall — is on our farmers and on our manufacturers,” Reynolds said at her weekly news conference Monday.

 

‘TRADE WARS AREN’T SO BAD’

Despite concerns from members of his own party, Trump has doubled down on calls for the tariffs and publicly backed a trade war.

Trump said during a news conference Tuesday that “when we’re behind on every single country, trade wars aren’t so bad.” He also said the tariffs would be imposed “in a very loving way.”

The tariff proposal also comes as the United States renegotiates the North American Free Trade Agreement with Canada and Mexico, two key trading partners for Iowa. The two countries accounted for 47.5 percent, or about $6.3 billion, of Iowa’s exports last year.

Trump has tied the tariffs and the NAFTA negotiations together, tweeting Monday that “Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed.”

The White House said Wednesday the tariffs may include exceptions for Canada and Mexico. Trump could sign a proclamation as soon as Thursday that would make the tariffs official, according to national news reports.

 

CAN IOWA DO ANYTHING?

Asked if Iowa could take any action to push back against Trump’s tough trade talk, Goss, Hayes and Doresca said its top legislative leaders need to make the state’s case to the president.

“Iowa really has a great relationship with the president. I think we need our governor, our former governor, our senators, they need to talk to the president and explain to the president what’s going on is really hurting Iowa,” Doresca said.

Iowa also needs to seek additional foreign markets for its goods, he said.

“Iowa needs to continue functioning in the way we’ve been doing in taking trade missions overseas, continue nourishing the good relationships we have with other countries as a state and also develop new partnerships with countries in Africa and Latin America,” Doresca said.

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