In a state whose biggest agricultural export is soybeans, growers of the crop perhaps should be leery.
Tariffs on imported aluminum and steel, which President Trump imposed March 8 could have disastrous consequences, particularly for soybean farmers, according to an agricultural economist with The Ohio State University.
The tariffs of 25% on steel and 10% on aluminum could cause other countries to retaliate by setting tariffs on U.S. goods they import, including soybeans, which are Ohio’s top agricultural export, said Ian Sheldon, who serves as the Andersons Chair in Agricultural Marketing, Trade and Policy with the College of Food, Agricultural, and Environmental Sciences (CFAES).
If that happens, that could further drive down the price of soybeans in the world market and the income Ohio farmers are earning on their soybeans, Sheldon said.
Here’s why. Although China is not the largest source of U.S. steel imports, the country has contributed to global overcapacity in steel production, driving down the world price. It also buys many soybeans from the United States. So, a steel tariff might lead China to penalize the United States with tariffs on American imports. That would make it more expensive for the Chinese to purchase American imports, including soybeans. And the demand for U.S. soybeans in China has been strong in recent years, fueled by the growing demand for meat in the Chinese diet and soybean meal to feed those livestock.
But if China retaliates with a tariff on U.S. soybeans, that could reduce the demand for soybeans from the United States and drive down the price, Sheldon said.
“This is a big deal,” he said. “There could be a lot of unintended consequences that I don’t think have really been thought through by the administration.”
In 2016, soybeans were Ohio’s most important agricultural export, totaling $1.4 million, and China is the top market for Ohio’s agricultural exports. About 40% of Ohio’s total agricultural exports are sold to China, according to the U.S. Bureau of Economic Analysis.
“So it’s reasonable to argue China is Ohio’s most important soybean export market,” Sheldon said.
Besides affecting soybean prices, the tariffs would cause the price of machinery to rise in the United States when the cost of steel and aluminum, the majority of which is imported, goes up with the planned tariffs, Sheldon pointed out. Any industry that consumes steel or aluminum will have to pay higher prices to make its products, and will likely pass those higher prices onto consumers and potentially cut jobs to stay profitable, he said.
Proponents of the tariffs have argued that the tariffs will help resurrect jobs in America’s diminishing shrinking steel and aluminum industries.
But, Sheldon pointed out, for every job in steel or aluminum the United States regains as a result of the tariffs, it will lose five to eight jobs in other industries that consume those metals.
“If the U.S. is inefficient at producing steel or aluminum, compared to other countries, we shouldn’t necessarily be directing resources toward those industries,” Sheldon said.
For years, China has produced steel primarily through government-subsidized businesses, which enabled it to produce a lot inexpensively. Chinese steel is now being diverted to the world market, giving it an unfair trade advantage, Sheldon said.
But instead of imposing tariffs on steel and aluminum, the Trump administration has the option of going to the World Trade Organization (WTO) and making a case against China for unfair trade practices, Sheldon said.
The role of the WTO is to encourage trade among countries and settle disputes when unfair trade is alleged to avoid all-out trade wars in which countries keep raising tariffs to shut out foreign products.
“I really worry about this undermining the WTO,” Sheldon said. “If we have a trade war, that would lower national income and lead to job losses. It could even start a global recession.”
The Trump administration, which originally called for tariffs on steel and aluminum imports from all countries, recently softened its stance a bit, making exceptions for Canadian, Mexican, and Australian imports. Canada is the biggest supplier of U.S. steel and aluminum, and Mexico also is a significant steel supplier to the United States.
However, making exceptions for any countries is likely to result in the United States being found in violation of WTO rules, Sheldon said.
“You can’t pick out some countries to target and then not others,” he said.
Sheldon and colleagues in CFAES and across Ohio State are in the midst of a National Science Foundation-funded study in which they’re developing models of the Great Lakes region to simulate the effects of various trade scenarios on producers, consumers and the environment.
For more information on Sheldon’s research, visit aede.osu.edu/research/andersons-program.