Michigan farmers caught in trade war crossfire
Elsie, Mich. — As David Williams looked over the soybean fields of his 3,800-acre farm, he counted the ways he's had to handle falling commodity prices in recent years: not purchasing new equipment, cutting costs, finding less expensive farming methods.
And now that China has implemented 25 percent tit-for-tat tariffs on soybeans and other imports from the United States, the 67-year-old president of the Michigan Soybean Association wonders what that will mean for the future.
"Nobody wins in a trade war," said Williams, a fifth-generation farmer. "We’re not going to win. China’s not going to win. In the meantime, soybean farmers are just hurting."
With farm net incomes down nearly 60 percent since 2013, many farmers who supported the president in 2016 are feeling further strain as they face the repercussions of an intensifying trade war. The price of soybeans has plunged 17 percent in the past month. Williams has seen $2 less per bushel of soybeans, about a 20 percent decrease.
"I feel like agriculture has supported the current administration," Williams said. "I don’t feel that support coming back to us."
Citing concerns over China's theft of intellectual property and national security, President Donald Trump has enacted billions of dollars in tariffs. Other countries retaliated with their own: China matched U.S. levies on July 6 with 25 percent tariffs on $34 billion worth of U.S. products and canceled the purchase of more than 420,000 metric tons of U.S. soybeans.
A day prior, Mexico had completed implementing $3 billion in tariffs on U.S. imports, much of them agricultural. Last month, the European Union enacted $3 billion in retaliatory tariffs, and Canada, Michigan's largest trading partner, hit back with $12.6 billion in tariffs on U.S. products.
Williams sells his soybeans to companies that trade them in the commodities market, so he doesn't know where they end up. In 2017, the $14 billion in soybean exports to China accounted for nearly a third of U.S. soybean production and 60 percent of national soybean exports. Michigan's soybean exports last year totaled $146 million.
Williams said he understands there is some "skulduggery afoot" with China not respecting American intellectual property. He would rather the nations sit down and discuss the issue. In a global market, he said, Trump's tariffs are harming the wrong parties.
"The farmers didn’t do it," Williams said. "We're the bright spot in the economy."
Michigan Farm Bureau experts said they hope the tariffs will lead to negotiations that open more trade opportunities without advantages to other nations.
"Free and fair trade means free access to those markets at a playing field that is level, but without actual trade barriers," said Ernie Birchmeier, the bureau's livestock specialist. "Open all the trade barriers, allow us to compete, and the American farmer would compete with anyone in the world."
Tariffs on pork from China and Mexico provide a second blow to soybean farmers, since much of their product is used in livestock feed. Last year, Michigan exported more than $25 million in pork, nearly $24 million of which went to Mexico. Since March, pork prices have fallen about $20 per pig, around 15 percent.
Falling commodity prices and higher costs for fuel and machinery have strained farmers' income to the worst point since the Great Recession. But the industry has seen opportunities for growth in the worldwide marketplace, especially in Asia. Ninety-five percent of consumers are outside the United States.
America's dairy industry, now in its fourth consecutive year of low prices, saw exports reach their highest in more than five years. Rising tariffs, though, are turning the future grim again.
The latest levies from Mexico and China slapped a 25 percent tax on U.S. dairy. In 2017, the United States' southern neighbor purchased 25 percent of U.S. cheese exports. Of Michigan's nearly $95 million in dairy exports, more than $17 million go to Mexico and $25 million to China. The duties, said Ken Nobis, president of the Michigan Milk Producers Association, give Canada and Europe the opportunity to take over those markets.
"We can't compete," he said. "Once you lose that market, it's hard to get back."
According to Kate Thiel, the Michigan Farm Bureau's field crops specialist, all might not be lost, though. China continues to have a demand for soybeans to support its population and pork industry. Other countries in Asia and South America may purchase U.S. soybeans and resell them to China. About 60,000 metric tons of canceled Chinese soybean orders are heading to Bangladesh and Pakistan instead. That diversion, however, increases transportation costs and keeps the price of the legumes low.
Shrinking incomes make it challenging for farmers to invest in their farms by purchasing land and new equipment — especially when American tariffs have increased the costs of foreign aluminum and steel. According to the U.S. Agriculture Department, every $1 of agriculture exports contributes $1.28 in business activity, adding billions to Michigan's $2.12 billion in agriculture exports.
"We can’t buy new machinery if we don’t absolutely need to have it," Williams said. "So the manufacturing sector isn’t able to sell what they’ve produced. It’s kind of a vicious circle."
Birchmeier said farmers are waiting out the effects of the trade conflicts. Low commodity prices have caused many Michigan farmers to take an early retirement, including nearly 200 dairy farmers in the past year. Thiel said the "unfortunate timing" of the tariffs could mean more of that is to come.
Many farmers are voicing their concerns to the administration and their congressmen. Williams flew to Washington, D.C., this week to speak with as many representatives and senators as he could.
"So far," he said, "our pleas have fallen on deaf ears."