Tariffs Kick In, Trade War Expands
On July 6, U.S. tariffs against $34 billion worth of Chinese goods took effect. This was in addition to earlier tariffs levied against steel and aluminum from many countries, including China but also Mexico and Canada.
China immediately retaliated with a list of its own of targeted U.S. products. Last week, the White House released a list of an additional $200 billion in Chinese products to be hit with tariffs. That figure roughly equals the total value of what China exports to the U.S, according to the administration. The new tariff list includes tuna, salmon and other fish, luggage, tires, dog leashes, handbags, baseball gloves, furniture, apparel, mattresses and electronic equipment. It even includes products in which there is, in fact, no trade between the two countries, such as exports of live trout or liquefied natural gas to China. The new U.S. tariff list will undergo a two-month review process, with hearings between August 20 and 23. China said it will impose “necessary countermeasures.”
Economists have long argued that the benefits of free trade outweigh its disadvantages. Some may lose jobs, but others will benefit from lower prices. Discontent over trade imbalances helped get Donald Trump elected president. Those who lost jobs to Chinese competition didn’t care that their fellow Americans who still had jobs now got to pay less for some products, manufactured overseas.
Now Trump may be betting that China needs U.S. goods more than we need theirs, and that many of the tariff costs to U.S. consumers will be spread out in the economy.
The effects of all these tariffs and counter-tariffs might not all show up to an equal degree on the rivers. But they will not be spread evenly. The one of most immediate concern to farmers and barge interests is China’s retaliatory 25 percent tariff on U.S. soybeans. That has alarmed mayors of Mississippi river towns, as you can read in this week’s issue. The mayors say they are already seeing tariff effects in their local economies.
Despite the tariffs, it may not be easy for China to immediately pivot away from the massive amount of U.S. soybeans it currently imports– $14 billion worth last year. And according to recent reports, serious freight issues in Brazil have kept that country from capitalizing on the soybean tariffs so far.
It’s the long term that U.S. farmers are worried about. In March, Purdue University completed a study for the U.S. Soybean Export Council that considered scenarios in which China imposed a 30 percent tariff on U.S. soybeans (higher than the actual 25 percent imposed so far). It specifically looked at long-term impacts, not immediate price movements.
The modeled long-term impacts from a 30 percent tariff included a 71 percent reduction in Chinese imports of U.S. soybeans; a 40 percent decrease in total U.S. soybean exports; a 17 percent decline in U.S. soybean production; and 5 percent decrease in the price of soybeans for U.S. producers.
This scenario or similar ones would have a drastic effect on soybean farmers, and on inland barge movements.