An international trade war would be a “rolling disaster” for Iowa, two economists and an international business expert say.
“Iowa is a net loser in terms of any trade skirmishes, trade wars, abolition of NAFTA that are brought on by this tariff increase,” said economist Ernie Goss of Creighton University in Omaha, Neb.
President Donald Trump called last week for a 25 percent tariff on steel and a 10 percent duty on aluminum imported into the United States. The proposal has drawn rebukes from members of his own party, and other countries say they’ll retaliate with tariffs on U.S.-made goods.
Trump’s chief economic adviser, Gary Cohn, resigned after failing to persuade the president not to push forward. U.S. financial markets reacted nervously in recent days. The Dow ended Wednesday down another 83 points.
A trade war would mean price increases for consumers, possible layoffs for workers and a loss of export markets for Iowa.
“Trust me, nobody wins in a trade war. The consumers are the ones that will pay the price,” said Dimy Doresca, director of the Institute for International Business at the University of Iowa.
‘Out on a limb’
Corn, soybeans, pork and eggs could be targeted for retribution, said Dermot Hayes, an Iowa State University economist. The state relies heavily on international markets to sell those goods.
“In Iowa, we have about 10 crop acres for every person. The world average is about one-half of one acre,” Hayes said. “We’re way out on the limb in terms of our specialization in agriculture and our need to export those products.”
Iowa would be vulnerable in a trade battle because of its reliance on exports and because food and agriculture are typically the “first casualties” in such skirmishes, Creighton’s Goss said.
Iowa is the nation’s largest producer of corn, producing about 2.6 billion bushels in 2017 and 2.7 billion in 2016. The state’s top export in 2017 was corn.
While steel or aluminum producers in the state would benefit from Trump’s tariffs, any company that uses imported metals would be hurt, Hayes and Goss said.
“If you take John Deere and assume that they were buying some of their steel from abroad, which I think is the case, then they would face a competitive (disadvantage) against those other tractor makers who were not paying those duties,” Hayes said.
While price increases for products may be the first noticeable effect of a trade war, longer-term repercussions would be more consequential.
“There are producers out there that stand ready to replace the U.S., whether it’s corn, whether it’s soybeans, whether it’s wheat, whether it’s processed food. They stand ready to replace us almost instantaneously,” Goss said.
He pointed to Brazil and Argentina as possible replacements.
Doresca said retaliation from other countries would be the worst effect.
“Iowa has been doing really well by itself. But now, you have a federal government who is not cooperating, who is making things more difficult for us,” he said.
The European Union already has discussed products it could go after in retribution. The proposed list would target $3.5 billion in imports including motorcycles, bourbon and corn, the Washington Post and Bloomberg reported.
“The fact that we voted for Trump is now coming back to haunt us, because the retaliation lists are looking for places that voted for him,” Hayes said.
China is one country that would be hit by tariffs. Former Gov. Terry Branstad, now U.S. ambassador in Beijing, hasn’t issued a statement on the matter, China Daily noted in an article on its website.
Iowa’s full congressional delegation sent a letter to Trump Wednesday asking him to reconsider the tariff proposal.
“We are concerned such a move could set into motion a chain of retaliatory measures, hurting Iowans from the family farm to the family-owned manufacturing plant. Tariffs are a tax on families and hardworking Iowans cannot afford a trade war,” the letter reads.
Gov. Kim Reynolds already has warned “unintended consequences” of the tariffs would be “devastating” for the state.
“Our farmers are the first target, and we know that’s where the unintended consequences will fall — is on our farmers and on our manufacturers,” Reynolds said Monday.
Despite concerns from his own party, Trump has doubled down on calls for the tariffs.
The president said during a news conference Tuesday “when we’re behind on every single country, trade wars aren’t so bad.” He also said the tariffs would be imposed “in a very loving way.”
The tariff proposal also comes as the United States renegotiates the North American Free Trade Agreement with Canada and Mexico, two key trading partners for Iowa. The two countries accounted for 47.5 percent, or about $6.3 billion, of Iowa’s exports last year.
Trump has tied the tariffs and the NAFTA negotiations together, tweeting Monday “Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed.”
The White House said Wednesday the tariffs may include exceptions for Canada and Mexico. Trump could sign a proclamation as soon as today that would make the tariffs official, according to national news reports.
Asked how Iowa could push back against Trump’s tough trade talk, Goss, Hayes and Doresca said top legislative leaders need to make the state’s case to the president.
“Iowa really has a great relationship with the president. I think we need our governor, our former governor, our senators, they need to talk to the president and explain to the president what’s going on is really hurting Iowa,” Doresca said.
Iowa also needs to seek additional foreign markets for its goods.
“Iowa needs to continue functioning in the way we’ve been doing in taking trade missions overseas, continue nourishing the good relationships we have with other countries as a state and also develop new partnerships with countries in Africa and Latin America,” Doresca said.