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Talk of tariffs creates unwelcome uncertainty for local ag, steel businesses

Corn is loaded into semis on Wednesday, April 4, at CHS Dakota Plains Ag Co-Op in Kindred, N.D. David Samson / The Forum1 / 2
U.S. Sen. Tina Smith, D-Minn., a member of the Senate Agriculture Committee, meets with state Rep. Paul Marquart, DFL-Dilworth, and other local lawmakers and members of a Farm Bill working group on Wednesday, April 4, 2018, at the Clay County Family Service Center in Moorhead. Michael Vosburg / Forum Photo Editor2 / 2

FARGO — The news that China intends to impose a 25 percent tariff on a range of U.S. imports — including soybeans, wheat, corn, beef, automobiles, chemicals and aircraft — turned up the heat Wednesday, April 4, on a subject that already has many agriculture and steel-related businesses in the state sweating.

China's announcement comes in response to planned American tariffs on high-tech Chinese products.

So, what impact might a trade war with China have on North Dakota? Consider this: More than two-thirds of North Dakota's soybean crop is shipped to China, which imports more U.S. soybeans than all other countries combined.

Although China has not declared a start date for its tariffs, the heated talk alone cooled activity at the CHS Dakota Plains Ag Co-Op elevator in Kindred, N.D.

"As an elevator, I can't sell (soy)beans anywhere because of uncertainty. Nobody wants to buy them from us because they don't know what the true price of the market should be," said Doug Lingen, grain merchandiser for Dakota Plains.

"Right now, if I buy beans from a farmer, I in turn sell the beans to an exporter. Well, I can't get a bid from an exporter because he doesn't know what (price) he can sell them to China or another country at," Lingen added.

The American Soybean Association issued a statement Wednesday expressing its "extreme frustration" about the escalation of trade conflict with China.

"We regret that the administration has been unable to counter China's policies on intellectual property and information technology in a way that does not require the use of tariffs," ASA President and Iowa farmer John Heisdorffer said.

Uncertainty as a market force gained momentum in early March, when President Donald Trump said he would impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports, with exemptions for Canada and Mexico. The administration said the move was in response to unfair trade practices by some countries, particularly China.

Lingen said tariff talk is affecting implement dealers in North Dakota who must deal with the consequences of higher prices for steel that goes into what they sell, as well as a reluctance on the part of some farmers to buy machines right now because of low grain prices.

"Everybody is going to be in limbo," Lingen said.

At Mid America Steel Inc., a Fargo company that makes products like structural steel, plate steel and rebar, the fallout from all of the tariff talk is becoming ominously clear.

"It's already affecting the marketplace," president and CEO Lee Holschuh said, referring to the threat of the U.S. raising tariffs on things like steel and aluminum unless China agrees to concessions.

"Weekly, we're getting changes in prices going up, up, up," Holschuh said.

"For us, it's one of the raw material costs," he said. "It's the eventual consumer of our product — a school, a shopping mall, whatever — that is going to have to pay more, or cancel the project if the cost goes up too much."

'Huge impact'

Pete Hanebutt, director of public policy at the North Dakota Farm Bureau, said tariffs and talk of tariffs represent a potential double whammy for farmers.

Firstly, he said, they increase the cost of production for things like equipment and vehicles, and secondly, countries where North Dakota now sells agricultural products may switch to growers in other countries.

China, in particular, could start buying things like soybeans elsewhere, according to Hanebutt. "That's a huge impact for us. That's real, and our farmers and our members are obviously very, very concerned," he said.

Hanebutt said the question at this point is how far the raising of tariffs goes and whether a trade war results.

"We need to be cautious about losing markets we can't get back into for a while," he said. "Sometimes, the ag sector is the first to be impacted and the slowest to respond after the fact."

Alan Slater, who works at the Moorhead Anheuser-Busch malt plant and is director of Midwest barley operations for Anheuser-Busch, said barley growers are concerned about the possible repercussions. He said tariffs have the potential to raise the cost of aluminum cans by as much as 3 cents per can.

It's a cost, Slater said, "that's going to hit all of us."

Economists tend to view tariffs as having a negative overall impact on a country's or state's economic growth, according to James Caton, an assistant professor of economics in the Department of Agribusiness at North Dakota State University.

"If the U.S. starts raising tariffs on a significant number of goods, then we can expect costs in the U.S. are going to tend to increase and we'll get not only less imports, but we'll also tend to get less exports," Caton said. "In North Dakota, in particular, we can expect there to be a generally negative impact for tariffs."

Dangerous game

Caton said since World War II, the U.S. has taken a leadership role in reducing tariffs as a way of fostering prosperity both at home and abroad.

"We play a dangerous game if we begin to increase tariffs," Caton said. "There's a very good chance other countries will begin to increase tariffs."

Holschuh said history supports that position, and he cited President George W. Bush's move to raise steel tariffs in the early 2000s as one example.

The tariffs were to be in place for three years, but they were canceled long before that. "If you learn from history, it didn't work very well," he said.

Because of Trump's rhetoric during his presidential campaign, the global steel market began to change when it became clear he could become president, according to Chad Wolf, general manager at McNeilus Steel in Fargo. The business buys steel in bulk and sells it in smaller quantities and also does some steel bending and laser cutting.

Wolf said one consequence of the election is that some dealers of foreign steel sat on the sidelines to see what would happen, reducing to some degree the supply of steel in the market and thereby raising prices.

He said the price increase is concerning because it can ultimately impact how much product McNeilus Steel can move — and it moves a lot, he said, estimating shipments out of the Fargo facility at about 600 tons a day.

Wolf said it would be helpful if Canada, too, imposed tariffs to keep a level playing field when it comes to things like steel prices.

He said clients have talked about looking to Canada to satisfy their steel needs, or even moving entire facilities and American jobs north of the border if the price advantage becomes great enough.

"There are still concerns, at least in the short run, on supplies of products," Wolf said.

A working group met in Moorhead on Wednesday to provide Sen. Tina Smith, D-Minn., with feedback on what people in the region would like to see retained in the latest Farm Bill, but talk soon shifted to tariffs.

Steve Lacey, with the Minnesota Wheat Research and Promotion Council, told Smith more than half of Minnesota's spring wheat is sold outside the country. "We need trade," Lacey said.

Smith said she worries when President Trump says things like trade wars are good and the U.S. can win them. She said when it comes to international trade, "a little finesse is in order."

Smith said she will push the administration for an outline of its overall plan for trade conflicts.

Dave Olson
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