As a third-generation farmer at Hamilton-based Koeman Farms, Steve Koeman is monitoring how possible tariffs could affect the economics of his family business.
Koeman’s operation annually harvests about 1,500 acres of corn and soybeans, but the threat of Chinese tariffs could significantly limit the viability of the key export market. According to data from the U.S. Department of Agriculture, China spent $12.3 billion for U.S. soybeans, and was the largest buyer of the commodity.
“It’s a big market for us,” Koeman told MiBiz. “We are already not the No. 1 choice for China for soybeans. They buy more out of Brazil, so we certainly don’t want to lose market or lose any position there.
“We worked hard to try and build those markets over the years and a 25-percent tariff is certainly going to hurt sales.”
Worries about the flow of agricultural commodities to China came about after the Trump administration in April proposed a 25-percent tariff on Chinese goods such as electronics, electric cars and aircrafts. As a result, China retaliated with tariffs of its own, targeting $50 billion worth of U.S. imports ranging from cars and soybeans to planes and whiskey.
Koeman said the soybean industry is at a surplus worldwide, so it’s going to be difficult for the U.S. — which exports about half of its soybean crop — to compete globally.
“Even the talks of putting tariffs in place have the markets down substantially for soybeans,” Koeman said. “Certainly, it’s not something that excites us when we have a lot of soybeans that need to get exported.”
Michigan farmers planted 2.3 million acres of soybeans in 2017, and the crop pumped $1.76 billion into Michigan’s economy while also creating more than 14,000 jobs, according to data from the Michigan Soybean Promotion Committee.
“Not only are soybeans a target (with the trade tariffs), but livestock is our largest consumer of soybeans and that’s another target of the proposed tariffs from China,” Executive Director Gail Frahm wrote in an email to MiBiz.
The tariffs and the possibility of a trade war give economist Jim Robey pause because of the effects it could have on the Michigan economy.
“Full on trade wars and protectionism aren’t good,” said Robey, director of regional economic planning services at the Kalamazoo-based W.E. Upjohn Institute for Employment Research. “We benefit by buying less expensively produced goods from across the world. There’s a significant benefit from having countries produce what they are good at.”
Ultimately, Robey said the point of ongoing trade talks is to fix the current “unfair” trade practices with China, Mexico, Canada and other countries. If this means ramping up the rhetoric to move the needle on improving trade relationships, “particularly with China,” then so be it, he said.
“Trump is pushing what needed to be done — maybe needed to be done earlier,” Robey added.
BAD TIMING
If imposed, the tariffs would come at a precarious time for farmers, who’ve seen their incomes cut in half since 2013 and have been taking on higher levels of debt to get by, particularly as commodity prices have declined.
Many agricultural commodities have “not (been) very profitable the last few years,” Koeman said, noting that added tariffs will only make it “worse for our liability and our farms going forward.”
Cliff Meeuwsen, president at soybean processor Zeeland Farm Services Inc., warns that China’s proposed tariffs could further damage an already struggling industry.
“U.S. soybean farmers have seen prices decline by almost 40 percent over the past five or six years and any news that could potentially drive prices down even further is unsettling,” Meeuwsen said in a statement in April. “But, as I understand it, there is no effective date set for the tariffs yet, so I don’t have any immediate concerns. In my opinion, it is a negotiation tactic to bring people to the bargaining table.”
In the meantime, the commodities market is left on its own to react to the tariff announcements, “and it did,” Meeuwsen said.
“It’s like anything else, the markets all react to the first news. They usually overreact and then come back to reality when it comes down to the discussion phase,” he said.
According to the U.S. Census Bureau, about 6 percent of Michigan goods are exported to China.
“There might be a trade deficit on some products, but we are pretty good in the U.S. at growing food or agricultural products,” Koeman said. “We have a surplus (of soybeans) here, and we want to be able to have a barrier-free selling experience going to other countries.”
If tariffs are passed, Robey said there will be “some impact” on the U.S. economy, but he’s unsure to what degree.
“On a state level, it will have some impact, and if you look at agricultural products, China is not a huge share of that, but it could have fairly detrimental impacts,” Robey said. “The larger issue is if we get into some sort of protracted trade war, it will impact the effect of NAFTA on the economy and impact many of the things we do in Michigan, like make furniture, cars and car parts. That could be problematic.”
GLOBAL IMPACT
Last December, Robey projected employment growth of 0.7 percent in the Grand Rapids area for 2018, a ninth straight year of jobs expansion.
However, Robey said there’s cause for concern when it comes to how the tariffs “will affect the natural economy, and the stuff we produce for domestic production.”
“Consumers may buy less if there is a downturn,” he said.
If this were the case, Robey said the global economy could take a hit as part of an “unintended consequence” of the tariffs.
“The whole world is growing right now,” he said. “The unintended consequence of the relationship between the U.S. and China (could) put a damper on the entire (global) economy, which would then greatly affect Michigan maybe more than the direct exports to China.
“Certainly the worst-case scenario is some sort of protracted trade war.”
