Can Trump Solve the Trade War Before Farmers Revolt?

With the president’s announcement that China will resume soybean purchases, there is a sliver of light in the tariff fight between the world’s two largest economies. But farmers’ patience could run out.

Mike Starkey offloads soybeans from his combine as he harvests his crops in Brownsburg, Ind., on Sept. 21.
AP Photo/Michael Conroy
Dec. 12, 2018, 8 p.m.

There may be an ever-so-slight break in the tit-for-tat tariff battle between the U.S and China, but the economic pain from the ongoing trade conflict remains, farmers and agriculture groups say.

Following a telephone conversation between Chinese Vice Premier Liu He, Treasury Secretary Steven Mnuchin, and Trade Representative Robert Lighthizer earlier this week, President Trump hinted in a Tuesday tweet at “very productive conversations going on with China” and that an announcement was coming soon.

Later that day, in an evening interview with Reuters, Trump said that China was buying a “tremendous amount” of soybeans and talks on purchases were ongoing. The move comes after the Dec. 1 deal reached between Trump and Chinese President Xi Jinping to hold off on increasing tariffs between the two economies.

Despite Trump’s statement, there has been no official announcement from China on the purchases, though Reuters reported Wednesday that Chinese state-owned companies had bought at least 500,000 tons, or about $170 million worth, of soybeans.

The move marks the first major thaw in a tense trade war between the two countries and has sent a glimmer of hope to farmers hit hard by the retaliatory tariffs that China has placed on U.S. agricultural exports. But $170 million isn’t exactly a “tremendous amount” when soybean exports to China top $12 billion in a typical year, and news of progress has been mixed among farmers and ranchers.

“Over the last two weeks, certainly, there’s more of an upbeat feeling because we were at least hearing about the possibility of progress, and patience was starting to grow thin,” said Brandon Wipf, a soybean farmer and board member of the American Soybean Association. “Now that we’re in a period of détente, I think that has certainly lifted spirits, but we will of course be watching with a critical eye to make sure that they are as positive for American soybean farmers as advertised.”

China imposed a 25 percent tariff on U.S. soybeans in July in retaliation for a series of tariffs on Chinese goods. Soybean purchases from China have ground to a halt since. Last year, China accounted for nearly 60 percent of all U.S. soybean exports.

Wipf, whose farm is in east-central South Dakota, said he’s had to put some of last year’s crop in storage, which is typical for many in his area. He said he hopes to liquidate the excess soybeans by the time his 2019 harvest rolls around.

“We just kind of place them there with just a bit of a question mark for what we’ll be able to get for them down the road,” he said.

Wipf said the ASA is pleased with the news that China will resume some soybean purchases, but it’s unlikely to solve the underlying issues plaguing farmers.

Still, farm groups have been reluctant to openly criticize the administration. Rural America still largely supports Trump, and many farm groups don’t see the utility in taking a confrontational approach. Wipf said his organization’s members have a broad range of views on the administration’s trade policy.

So far, farm bankruptcies have remained stable despite the growing tariff pressure, but the effect is regional, according to data published by the Farm Bureau in November. In the soybean-heavy Upper Midwest, bankruptcies for fiscal 2018 rose by nearly 50 percent compared to the year prior, while in Western states, bankruptcies fell by 41 percent in the same period. In total, bankruptcies for the fiscal year, which ended Sept. 30, were down by 8 percent, with 468 Chapter 12 filings.

Soybean farmers in the Upper Midwest "have been impacted the hardest by the disruption of the Chinese market because that was our market,” Wipf said. “A lot of our soybeans, basically any soybeans that we wanted to export, were going on trains to the Pacific Northwest and getting loaded for destinations out of there.”

Like soybean farmers, other farmers and ranchers hope for a reprieve as well.

The U.S. exported about $155 million in ethanol to China in 2017-18, according to the U.S. Grains Council, but the tap was closed after the retaliatory tariffs raised levies on U.S. ethanol imports to a combined 70 percent, said Lesly McNitt, policy director for the National Corn Growers Association.

“What I’m hearing is that there is a lot of anxiety and concern about the administration’s trade policy, particularly the tariffs,” McNitt said of farmers broadly. “Farmers have had their heads down in the fields, literally, in the last few months. But now that they are having those conversations with their bankers, they have been willing to be patient, but their patience is running out.”

Not all groups are running out of patience, though.

Kent Bacus, a trade expert for the National Cattlemen’s Beef Association, said that ranchers largely continue to back the administration's trade plan.

One of the early trade victories for the Trump administration was opening up China to U.S. beef after 13 years of import restrictions, a move that endeared ranchers to the administration.

But U.S. beef producers only spent about six months in the market and reached about $46 million in sales before retaliatory tariffs increased import levies to 37 percent, effectively locking them out of the market.

Bacus and the NCBA call for more certainty in U.S.-China trade. China bans certain growth hormones used in the U.S., so ranchers have to use different methods in raising China-bound cattle. That makes it difficult and expensive to divert the livestock if the market is suddenly shut off to U.S. exports. Still, Bacus says his groups stands by the administration's “hardball” strategy.

“It doesn’t mean that we just have a rosy view of everything and will disregard the obvious pain from these tariffs, but we fully stand by the president,” he said.

Farm groups have largely held off on pushing Congress to limit the president’s tariff authority. On the Hill, senators passed the latest farm bill Tuesday and the House approved the measure Wednesday, sending the measure to the president’s desk. Though the bill does have funding increases to agricultural trade programs, Senate Agriculture Committee Chairman Pat Roberts told reporters that he saw the farm bill and tariffs as separate issues, adding that some of the legislation’s aid could help those hurt by the trade disputes.

“It’s the tariffs that really hurt us, and that goes like shattered glass,” Roberts said. “With that, with low prices, there are an awful lot of farmers, ranchers, and growers that are right out there on the edge, and so their lenders were watching this bill just as carefully as they were, and now [farmers] can say, ‘I’m good for the next five years.’”

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