Michigan farmers, automakers fear China trade backlash

Jonathan Oosting, and Keith Laing
The Detroit News

Lansing — Michigan’s automakers, as well as soybean and pork farmers, are on edge as China threatens to retaliate against some of the state’s top export industries in a bid to counter tariffs proposed by President Donald Trump.

Although China hasn’t made a specific threat about vehicles, Detroit’s automakers are leery of a U.S. trade war with the country that is home to the world’s largest automotive market. Farmers likewise are worried about higher tariffs on their goods — which last year generated $19.6 billion in purchases from the Chinese, making it the second largest agricultural export market for Americans.

Fears of a trade war escalated Thursday when Trump directed U.S. officials to slap tariffs on $50 billion worth of Chinese imports, citing an “out of control” trade deficit after a months-long investigation into intellectual property theft. The U.S. trade deficit with China grew 12 percent last year to $566 billion.

The stock market closed Friday with its worst week in two years. The Dow Jones Industrial Average fell nearly 1,130 points, or 4.6 percent in two days, despite efforts by Trump to calm the markets.

“I think the stock market is going to be great,” Trump said early Friday afternoon after a bill signing at the White House. “When I came into the office, the stock market was from a different planet. It’s way up.”

Trump cast his proposed tariffs as an effort to bring fairness to the U.S.-China trade relationship.

“For many years, they had free rein,” he said of China. “They don’t have free rein anymore. We are very friendly with China. We have great relationships with China. Look, it’s time. Last year we lost $500 billion on trade with China. We can’t let that happen.”

The Global Times, the Chinese Communist Party’s official newspaper, responded to Trump’s tariff pronouncement with an editorial calling for “strong restrictive actions” against the United States for alleged “massive subsidies and dumping of soybeans” in China. The Wall Street Journal reported China is considering tariffs against soybeans, pork and sorghum.

“We would hope that everybody would take a step back and a deep breath and reconsider the entire situation,” said David Williams of the Michigan Soybean Association, which has been lobbying Congress and the White House to stop the tariff threat.

Soybeans are Michigan’s top food export, with $448 million of product sent out of the country in 2015. China is also the national industry’s top market, Williams said.

“Not all of our beans (from Michigan) go to China, but certainly some of them do,” he said. Michigan was the nation’s 13th largest producer of soybeans among the states in 2015, according to the U.S. Department of Agriculture.

Brian McKenzie runs a fourth-generation family farm in Cassopolis, where he raises soybeans on roughly 1,500 acres. He’s also a hog farmer, so he is especially concerned about the potential tariffs.

The war of words between Trump and China “is a lot of posturing,” said McKenzie, a Trump voter who argues the president usually follows through on his promises, for better or worse.

“Hopefully we can back ourselves off the ledge of this tariff war, because it’ll cause a lot of damage for farm country and for the exact people who voted for Trump,” he said.

Auto industry worries

Automakers are also wary about Trump’s tariff action.

“We recognize the issues the president is trying to address but there are better ways to go about this,” said John Bozzella, president and CEO of the Association of Global Automakers, which lobbies for international automobile manufacturers. “At the end of the day, a trade war will hurt American producers and consumers.”

China is the world’s largest automobile market with more than 25 million in car sales last year, compared with 17.23 million in the United States. China is expected to be a force in the auto industry for years to come, especially in electric cars. In 2017, China sold 777,000 electric cars and plug-in hybrids, compared with about 200,000 in the United States.

Automakers have caught a break so far because China’s response to Trump’s tariff threat has been relatively muted, said Charlie Chesbrough, senior economist and senior director of industry insights for Cox Automotive.

But he warned that the communist Chinese government could up the ante and wreak havoc on the U.S. auto industry because they run a controlled economy.

“They could say that every vehicle needs to have some obscure part that is only made in China, if that’s what they wanted to do,” Chesbrough said. “The danger for automakers is similar to the danger that everyone else is facing. If we got into a trade war with China, that could cause import price inflation as well as constrain the U.S. economy, which may have a negative impact on U.S. auto demand.”

The risk is more real for Michigan’s pork industry. The state’s hog farmers process or raise more than 2 million pigs a year, said Mary Kelpinski, chief executive of the Michigan Pork Producers Association, who added the industry is poised to grow because of a new processing plant that recently opened in Coldwater.

“There’s not much producers can do right now except watch and hope that this is a lot of feather ruffling, and that we’ll be able to come to terms and not have a trade war,” Kelpinski said. “We really cannot afford to have a trade war.”

More than 26 percent of all U.S. pork is exported, and China is the second largest market for the meat, she said. “Any disruption in that trade can have a huge impact on our industry.”

Most Michigan pork producers have contracts to sell their hogs at a set price, Kelpinski said, but if demand falls because of tariffs, the contracts could change in the future and leave the country with more pork than it can handle.

Pigs already born take about six months to mature until they’re brought to market. For farmers that have already invested in stock, “it’s hard to stop that flow mid-stream,” Kelpinski said.

Snyder is concerned

Trump, the first Republican presidential candidate to win Michigan since 1988, campaigned against unfair trade deals and promised an aggressive effort to favor domestic companies and workers. His administration began investigating China in August for unfair trade practices and intellectual property theft.

The probe found, among other things, that China uses foreign ownership restrictions to pressure U.S. companies looking to do business in the country to transfer technology to Chinese entities.

Gov. Rick Snyder believes Michigan companies doing business in foreign markets “need adequate protections for intellectual property and should be able to retain ownership of proprietary technology,” said spokeswoman Anna Heaton, noting the governor has discussed the issue with the White House.

“At the same time, he does remain concerned that tariffs can have negative, unintended consequences on Michigan employers and their employees,” Heaton said. “We’ll have to analyze further once China’s intentions are more clear.”

China’s state-run newspaper this week accused the U.S. of breaking international trade rules by flooding the country’s market with cheap and subsidized soybeans.

“I’m certainly not aware of anything like that and I don’t believe that’s anything we would do,” Williams said of the U.S. “The government does not subsidize soybean production.”

Gary Parr, a mid-Michigan farmer in Charlotte, grows about 350 to 400 acres worth of soybeans each year and is gearing up for another planting season next month.

It’s currently cheaper to produce beans than corn, so a lot of farmers have been using more or their land for beans in recent years, Parr said.

His food-grade beans primarily go to Japan and Italy — not China — but he’s still concerned about how the Chinese tariffs could affect the industry.

“At this point, it’s just been rhetoric so far,” Parr said, “but China is the biggest export market for soybeans for the U.S., so it could be very potentially damaging.”