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Long-lasting impact of a trade war

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China is threatening to impose additional tariffs on United States products. The new “hit list” targets United States agricultural commodities such as corn, soybeans and frozen beef.

Iowa State University Extension economist Chad Hart says both countries, China and the United States, stand to lose lose in the event of a trade war. He states neither country diversified its market for certain agricultural products.

“We trade corn, for example, with roughly 140 countries every year. We know some of those markets get bigger, some get smaller. Diversification helps balance things out,” Hart said. “Where we struggle, especially as we look at this debate with China, is we have a lack of diversification on both ends.”

Hart notes China purchases a vast majority of soybeans. A lot of those soy exports come from the United States. At the same time, the United States sends a lot of its agricultural exports to China. Hart says the lack of diversification will force both countries to look to their second, third and maybe fourth best market for future sales.

“You’re probably not capturing as high of a price as you would if you could go in that first place market. That’s the other thing: When we talk about winning or losing this, there’s that gradual loss that occurs.”

Hart says it is common for markets to react dramatically at first. He suggests emotions will simmer down with time, but producers will still feel the pinch.

“It’s one of those deals where the initial hit is dramatic,” Hart said. “It is very quick. When you lose that first market, you see an immediate drop in prices for producers. You also see an immediate rise in prices for consumers, so it’s a double-whamming hit upfront. Then what happens is, I can’t sell to number one market, so I’m looking down to two, three and four. I’ll gain some sales there, but the problem is – even months after the impact, I probably haven’t gained enough sales back to offset the loss of the first market.”

Hart adds sectors impacted by a trade war never fully bounce back to where they were.

“What tends to happen is we put these border taxes, tariffs and non-trade barriers in place. As we negotiate our way out of that, we remove some of those, but we almost never knock all of them back out again. There are these lingering policy impacts that continue to drag on the economy, even after the dispute is long gone,” Hart said. ”It takes awhile to get policy back in place, but it also takes awhile to rebuild trust and structure with that other competing country.”

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