Minnesota's soybean sales could take big hit if China tariffs proceed

President Donald Trump touts his trade policy as long-overdue action to help America's workers and industries, but some economists warn that tariffs he has placed or is threatening to place on China and Chinese retaliation to them could actually bolster other countries at the expense of the U.S.

Nowhere is that more apparent than in the case of Minnesota's vital agricultural staple, soybeans. The state ranks fourth in the country in all agricultural exports. Soybeans, as Worthington, Minn., farmer and American Soybean Association director Bill Gordon puts it, are the "golden egg," accounting for 30 percent of the total. Minnesota's farmers exported $2.1 billion worth of soybeans in 2016, according to government statistics. Most of them went to China.

If the Chinese proceed with a threatened 25 percent import tariff on U.S. soybeans in retaliation for 25 percent protective tariffs Trump placed on a variety of nonagricultural Chinese products, Minnesota soybean growers and others across the country face a loss of 69 percent of Chinese sales, said Purdue University agricultural economist Wallace Tyner, who analyzed data for the U.S. Soybean Export Council.

The loss of U.S. sales comes because the retaliatory tariff will make U.S. soybeans more expensive than those China can buy from other countries, principally Brazil.

Some of those lost Chinese sales can be made up selling U.S. soybeans in other parts of the world, Tyner said. But if the tariffs stay in effect for a long time, U.S. soybean exports to the world could shrink by 29 percent. Brazil, meanwhile, would see its soybean export business grow conspicuously at America's expense, according to Tyner.

"The short-term price impacts are also serious," Tyner said. "If tariffs are still in effect [when Americans harvest the soybeans they've already planted] and there are beans in bins looking for boats [to ship them abroad], then the price really falls."

This scenario strikes farmer Kristin Duncanson as ironic, given Trump's insistence that protective tariffs help American businesses. A 29 percent export loss would be very hard for any soybean farmer to absorb, and it could be devastating to those who lack working capital, she said.

"Half of our soybean crop gets exported," said Duncanson, who grows soybeans and corn and raises hogs south of Mankato. "For us [a 29 percent reduction] means a really big impact. Soybeans are much more profitable than other crops. What do we replace them with? Corn? Well, corn is not doing well in the market now."

Between bad weather and tariffs, Duncanson said she and her fellow farmers are "nervous." They have experience dealing with the weather. But tariffs are "totally out of our control." With a crop in the ground, farmers "can do nothing from a management and marketing point of view."

To a lesser degree, the same can be said for Minnesota pork producers, said Brian Buhr, dean of the University of Minnesota's College of Food, Agricultural and Natural Resource Sciences.

Minnesota is the country's third-leading pork producer. Now pork exports from the state face retaliatory tariffs on certain parts shipped to China because of Trump's specific tariffs on that country. They also face retaliation from a general tariff of 25 percent on imported steel and a 10 percent tariff on imported aluminum that the president extended to Canada, Mexico and the 28-nation European Union, as well as other countries that Trump said engaged in unfair trading practices. Mexico has said it will place a tariff on certain U.S. pork products, making them more expensive. The E.U. has not yet responded to the metal tariffs.

As Mexico — a prime buyer of Minnesota pork — looks for alternative sources, Buhr explained, tariff-free Canadian and E.U. pork producers look to benefit at the expense of America's hog farmers.

"Whenever a buyer can easily substitute something cheaper for your product, your market goes down," said Robert Kudrle, an international trade professor at the University of Minnesota. "That's true for anything we make except for the highest tech products. I don't think people understand that."

Whether the U.S. citizenry cares about the suffering of farmers is anybody's guess, Tyner and Buhr said. What may rouse consumers is the ripple effect of tariffs.

"Some people still talk about this as a stare-down" that will end with both sides finding a compromise, Duncanson said. "I'm not sure about that."

As Indiana, a steel- and aluminum-producing state, celebrated Trump's imposition of tariffs on imported metal, Tyner wrote a news release reminding his fellow residents that the state also is one of the largest producers of auto parts and those materials were about to cost significantly more. The same can be said of rising farm-machinery costs in Minnesota's rural communities. It can be said of a tariff on Canadian soft wood that makes building homes in the Twin Cities metro area more expensive.

The ripple may finally hit home when most Minnesotans directly experience the costs of tariffs at the cash register in everyday shopping trips, Kudrle said.

Target CEO Brian Cornell is working in conjunction with other retail leaders who import massive amounts of Chinese products to head that off.

But as Kudrle noted, with each round of tariffs, it gets harder and harder to do.

The U.S. tried to limit the first list of Chinese products to be taxed to those that were not everyday purchases, Kudrle said.

"You can do that when you're putting tariffs on $34 billion or $50 billion worth of products," he said. With Trump's latest threat to add another $200 billion worth of Chinese products to the tariff list, Kudrle predicted, "it will be impossible."

Jim Spencer • 202-662-7432