Farmers across the Midwestern United States expect to lose billions of dollars this year if the trade war between the United States and China continues to escalate.
China has threatened $50 billion in tariffs on American exports -- including soybeans and other agricultural products -- beginning Friday. The move is retaliation for tariffs the United States imposed on China to combat "unfair practices related to the acquisition of American intellectual property and technology," President Donald Trump said. Rather than spur China to alter its trade policies, China punched back, putting the two governments in a standoff.
Midwestern farmers are in the crossfire.
"There are issues related to our trade dealings with China," said Grant Kimberley, the director of market development for the Iowa Soybean Association. "Trump's not wrong. But the stakes are pretty high here. We don't want to be the pawn."
The stakes are high because China buys roughly 30 percent of all America's soy. The proposed 25 percent tariff -- which is a tax buyers pay the government to purchase the commodity -- ensures Chinese buyers will look elsewhere.
A Purdue University study estimated soy exports to China would drop about 65 percent under such a tariff.
"That is a major disaster," said Farzad Taheripour, a professor of agricultural economics at Purdue.
If the trade dispute remains unresolved by fall harvest time, the price of American soy will fall sharply, said Taheripour, who conducted the study. Farmers could lose more than $3 billion in the first year.
An Iowa State University economist said that Iowa farmers alone could lose up to $624 million. What that looks will like on individual farms is hard to predict.
"I think I can weather this," said John Heisdorffer, an Iowa farmer. "I think I can. Farmers are used to markets going up and down, and we try and prepare for the down years. But there is no way to prepare for this. We're going to lose money on every acre of soybeans."
Heisdorffer, who is the president of the American Soybean Association, worries for young farmers with less money put aside. He also fears that farmers who rent land will not earn enough to pay their leases.
"There will be farmers who lose their rentals," he said.
Farmers who stay afloat will do what they can to prepare for a lean year. Most will put off buying new farm equipment and tractors, said Jim Fitkin, an Iowa farmer. Many will probably buy less fertilizer.
"There's not much more we can put off," Fitkin said.
That leaves them in the uncomfortable position of waiting and hoping for a swift resolution between the feuding governments. And they're not the only ones. The soy tariff will have equally profound impacts on the Chinese economy.
Taheripour's study predicts that the Chinese economy lose more than $3 billion due to the tariff. That's on top of the billions of dollars more that the United States' tariffs will cost them.
"We have good relationships with industry buyers in China," Kimberley said. "They also want this resolved quickly. They want to buy from us. We just need our governments to figure out a way to resolve this."
If a swift resolution is not achieved, America's agricultural economy will experience some fast -- and painful -- adjustments over the next few years.
With less demand, American soy production will likely drop 15 percent, Taheripour said. Farmers who stay solvent will have to find other crops to grow.
[ads-post]
Meanwhile, soy production elsewhere in the world will skyrocket to fill China's demand, Taheripour said.
Brazil, which competes with the United States in soy exports, will see a huge economic stimulus.
"Brazilian farmers will do well with this," Taheripour said.
With the extra money, Brazil is planning to build roads and invest in other infrastructure in rural areas, Taheripour said. The new infrastructure will allow that country to not only increase their soy exports, but other crops as well.
"That's going to have lots of unforeseen impacts in the future," Taheripour said. "This trade war is a big gift for Brazil."
American farmers and trade negotiators are hopeful it won't come to that.
"We just have to hope that this is dealt with quickly so we can get back to the business of feeding the world," Kimberley said. "Ultimately, nobody is going to win in a trade war that affects food."
