The economic storm clouds over Iowa have gotten darker.
Researchers predict agriculture trade distruptions will put a $1 billion to $2 billion hit on Iowa’s economy over the next year —and it could get worse with the most recent round of tariffs the United States and China have slapped on each others goods. That could hurt Iowa not only in immediate term, but potentially diminishing its long-term global reach.
"History has shown that the world’s farmers don’t just sit back and wait for countries to settle their differences," John Crespi, interim director of the Center for Agricultural and Rural Development at Iowa State University, said. "They ring the doorbell and offer their products."
The center recently published research showing trade disputes could hit agriculture-heavy Iowa particularly hard, amounting to gross state product losses between $1 billion and $2 billion over the next 12 months.
Iowa’s 2017 gross state product was $190 billion, and the U.S. Census Bureau put its export value for 2017 at $13.4 billion, about 7 percent of that $190 billion total.
Iowa’s top exports include corn, at $1.18 billion; tractors at $747 million; and fresh and chilled pork at $442 million, according to the bureau.
In its tracking of export destinations, Canada is the top for Iowa — receiving $4.08 billion in Iowa products, followed by Mexico with $2.26 billion, Japan at $1 billion, and China and Germany rounding out the top five, according to the ISU study.
That makes recent U.S. trade disputes, tariffs tit-for-tat, and uncertainties with the likes of Canada, Mexico, and China particularly impactful for Iowans.
"American farmers are always on the front lines of trade wars," Crespi said.
Overall losses to Iowa’s $5.2 billion soybean industry are projected between $159 million and $891 million, according to the ISU research, with average revenue loss across all models of $545 million;
Overall losses to its $8.5 billion corn industry are expected between $90 million and $579 million, with average revenue loss of $333 million;
Overall losses to Iowa’s $7.1 billion pork and hog industry are expected between $558 million and $955 million, with average revenue loss of $776 million;
And a 2 percent drop in ethanol prices is projected to amount to about $105 million in lost revenue for Iowa’s ethanol producers.
Iowa State researchers, in their report, note the trade disruptions shouldn’t have come as a surprise to anyone — as President Donald Trump long has touted trade rebalancing as a priority. Since taking office, he’s taken steps to renegotiate NAFTA and imposed escalating tariffs on Chinese goods — which the Asian power has countered in kind.
The Chinese response to U.S. steel and aluminum tariffs in March had the biggest impact on Iowa, as they included pork products and ethanol. The back and forth escalated the hurt, although Trump’s most recent tariffs on Chinese goods in September, and the response, have not been calculated into the ISU research.
Crespi said they likely will augment the impact slightly, but are unlikely to have as big an impact as the ag-specific goods.
And, even if the trade war dissipates over time and the countries emerge with new agreements, the United States and its producers — including Iowans — could have forever lost footing in the international marketplace, according to Crespi.
"The harder question is what happens in two, three or 10 years if the trade wars continue?" Crespi said. "You could find that the U.S. loses so much market share that a decade from now, even if you get rid of the tariffs, the U.S. may be a smaller player."
The research highlighted examples of long-term world market share impacts, including fallout from the Russian grain embargo in the 1980s and a 2009 dispute with China. During the U.S. embargo in the 1980s, European farmers stepped up and gained much of the trade American farmers lost, according to the ISU research.
The 2009 trade fight with China caused the United States to lose a "significant portion of its China poultry trade to Brazil and the European Union."
"Today," according to the researchers, "soybean growers are already facing a similar situation. For decades, U.S. soybeans set the price to which soybeans grown in other countries were marked. Currently, U.S. soybeans are selling on the world market at a discount to Brazilian soybeans."
On top of lost agricultural revenue, trade disputes can and are translating to lost labor and tax revenue for the state.
The ISU research found labor income declines in the corn, soybean, and hog industries could range from $245 million to $484 million, which it reports is enough to support 9,300 to 12,300 jobs.
As far as Iowa tax revenue — including personal income and sales taxes — losses could range between $111 million to $146 million. Federal assistance could cushion that blow, but losses still would span $75 million to $110 million, according to the ISU findings.
"Could the rest of the economy grow substantially and offset these losses? It’s possible," Crespi said. "But don’t forget recessions will happen again. One hundred million dollars might seem affordable when times are good, but when times are bad, that’s when the tough decisions have to be made."