(USA TODAY)- Trade regulations imposed by President Donald Trump’s administration, which levy a 25 percent tariff on$34 billion worth of Chinese imports to the United States quietly went into effect at midnight Friday.
Chinese authorities quickly retaliated with equivalent tariffs on $34 billion worth of imported U.S. goods.
This was the latest in a series of tariffs that began in January and has already affected imports of solar panels and washing machines, as well a steel and aluminum.
Louisiana’s reliance on trade makes it a unique microcosm of how the ongoing tariff battle will affect America, Bloomberg News reported last week.
A trade war would slow Louisiana’s total economic output by a minimum of 7 percent over five years, the most of any state, according to the Federal Reserve Bank of Dallas, Bloomberg reported, and put one in six jobs in the state of 4.7 million at risk.
‘There’s about as much pressure on ag as you can get’
No Louisiana industry stands to lose more in this trade war than agriculture, where exports account for $8.3 billion of the state’s $13 billion annual agriculture economy.
But Louisiana manufacturers that rely on steel and aluminum are already hurting, with some prices increasing by 20 percent since February.
And Louisiana boat builders are particularly concerned about the impact of tariffs.
Still, the most widespread potential impact might be to the state’s vast agricultural industry.
“There’s as much pressure on ag as you can get right now,” Louisiana Agriculture Commissioner Mike Strain said Monday in an interview with USA Today Network.
Tariffs already instituted by Trump have triggered retaliation by the European Union, as well as China. Canada, Mexico and India are among the nations who have promised to follow suit this summer.
Major crops rely on exports
“We’re fighting a drought and cheap prices already, so any other setbacks put even more pressure on agriculture,” said Caddo Parish rancher Marty Wooldridge, who is also a leader in the Louisiana Farm Bureau Federation.
Most of Louisiana’s major crops, from rice to soybeans to cotton, rely on exports for 70 percent or more of their market. Sugar is the only crop that is largely protected because it’s consumed domestically.
Soybeans in the crosshairs
But soybeans are particularly vulnerable and have been targeted by China.
“China wants to hit us where it hurts most and that’s soybeans,” said U.S. Rep. Ralph Abraham, R-Alto.
Abraham is Louisiana’s only member of the House Agriculture Committee. His daughter and son-in-law Ashley and Dustin Morris operate the Abraham family farm.
“Nobody risks more than farmers every year,” he said. “As I’ve said many times, agriculture is our nation’s thin green line.”
More on the U.S. trade war: Layoffs, reduced hours, slimmer profits
Trump and his U.S. Agriculture Secretary Sonny Perdue insist the president’s actions will ultimately place all American industries in a stronger global position, including agriculture.
“There is no denying that the disruption in trade relations with China is unsettling to many in agriculture, but if the president succeeds in changing China’s behavior, America’s farmers will reap the benefits,” Perdue said in a column published by USA Today.
U.S. plans to protect farmers
Perdue said he is crafting a strategy to support farmers who might be initially harmed, “To this point, we have not unveiled our strategy, as it is not good practice to open our playbook while the opposing team is watching,” Perdue said.
Both the House and Senate have passed their versions of the Farm Bill, which will now be hashed out in a conference committee to resolve differences.
Abraham said some protections could be added in conference.
“We’re talking about that in both chambers,” he said.
The Farm Bill already contains some protection through crop insurance, where many Louisiana farmers choose price loss coverage.
But Abraham said more protection should be added either in the Farm Bill or other instruments.
Trump asked for farmers’ patience in a recent television interview.
“They have to hang in there with me for a little while,” the president said. “I’ve been very successful at doing this stuff.”
Farmers supporting Trump
And for the most part Louisiana’s farmers and agriculture advocates are sticking by the president.
“This administration has a good business background and at the end of the day I believe the U.S. has to re-establish itself and its credibility on the world trade stage,” said Acadiana farmer and Farm Bureau Vice-President Richard Fontenot.
Fontenot farms soybeans, rice and crawfish.
“Sometimes you have to take a little medicine up front that doesn’t taste to good to cure the problem,” he said.
“At the end of the day I think we’ll be in a better position, but it could be a hard road until we get there,” Strain said.
“President Trump has told us he’s in control and I believe him, but I want him and the administration to act quickly and to provide a plan to keep farmers upright if we enter a trade war,” the congressman said.
Carlos Polotzola, a St. Landry Parish soybean farmer, is already feeling the impact of the tariffs China imposed in retaliation for President Donald Trump’s tariffs on Chinese imports.
“Yes, we are feeling it,” he said Tuesday.
Soybean price dropping
In the past 30 days, Polotzola said, the price of soybeans dropped $2 a bushel. About half of that drop, he said, is because of the tariffs.
China imposed a 25 percent tariff on the import of soy, part of tariffs the Chinese imposed on American imports in response to Trump’s tariffs on Chinese imports.
The price of soybeans in the U.S. fell to $8.60 in the first few days of July, down from more than $10 in 2017.
Louisiana farmers grow about 1.2 million ares of soybeans, exporting the vast majority of the crop,Strain said Monday.
Nationwide, 60 percent of soybean production goes to China, he said.
St. Landry Parish farmers grow about 100,000 acres of soybeans a year, producing about 40 bushels per acre on average, Vince Deshotel, of the LSU AgCenter in Opelousas, said.
‘It’s very scary’
If farmers are paid $8.50 a bushel at 45 bushels, Deshotel said, that’s $382 an acre gross return before expenses. It can cost $200 to 300 an acre to plant soybeans, between seed, fertilizer, chemicals, equipment and labor. That’s not enough to make a profit, he said.
“It’s very scary,” Deshotel said. “You can’t farm for a break even price or a loss.”
Strain and Polotzola said they believe Trump’s trade negotiations, in the long run, will benefit Louisiana, which Trump carried in the 2016 election with 65 percent of the vote.
“I back the president up, what he’s doing,” Polotzola said, acknowledging the economic situation is tight right now. “Trump is playing hardball. At the end of the day, I think agriculture is going to benefit from these tariffs. It’s going to bring (China) to the table.”
China, Strain said, already committed to buying more agriculture products from the U.S. The Chinese said they’ll try to decrease the $600 billion negative trade balance by half, he said, “which would be huge.”
Boat builders fear tariffs
Along the Louisiana coast, Trump’s 25 percent tariff on the import of steel could hit boat and ship builders like Gulf Craft boat builders located on the Charenton Canal in St. Mary Parish.
Vice President Scotty Tibbs said he understands the reason for the tariffs, making trade fair.
“But it has negative impacts,” he said. “It’s not good for a lot of businesses in Louisiana.”
Gulf Craft, which manufactures commercial boats and employs 100-110 people, can pay a half-million dollars for an aluminum order. Adding 25 percent to that price is huge.
The company’s saving grace, Tibbs said, is that every shipbuilder in the country will be hit with the tariff. But they will be at a disadvantage competing for jobs with builders in other countries.
In late May, the Trump administration ordered a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports, no matter where they come from, citing a threat to national security.
Missouri and Louisiana import the most steel and aluminum in the U.S., according to the Brookings Institution and U.S. Census Bureau.
Manufacturers question availability of steel, aluminum
The Trump Administration’s tariffs on metals imported from Canada, Mexico and the European Union, among others, are seen by Louisiana economic officers as part of trade negotiations — a short-term step and a pathway to new agreements among nations.
But manufacturers in Louisiana have seen the prices of steel and aluminum rise, by more than 20 percent since February in some cases.
For some, the prospect of the Trump administration using economic protections to shrink trade deficits is a good thing. Others denounce the tariffs as harmful.
U.S.: Largest steel importer
The U.S. is the world’s largest importer of steel. U.S. imports in 2017 represented about 9 percent of all steel imported globally, with most of it coming from Canada, Brazil and South Korea, according to the U.S. Department of Commerce.
For now, the consequences of the imposed tariffs are unknowable, said Don Pierson, Louisiana’s secretary of economic development.
“There’s an ongoing international negotiation/re-negotiation of elements where multiple countries and the European Union, China are all seeking to find a pathway to a new set of agreements,” he said. “Once we know those agreements, we can arrive at a point of certainty.”
There’s speculation about what effect the tariffs could have. Those conversations cause ripples that introduce uncertainty into markets and stockpiling of materials, Pierson said. He added that he’s unsure if the state has seen the effects of speculation yet.
“With all the complexity and with no real end product in terms of negotiated settlements in hand, what we’re faced with is being in a time of uncertainty relative to these outcomes,” he said.
Billions in projects underway
Since 2012, about $178 billion in new industrial construction projects has been announced in Louisiana. More than $85 billion of that is either under construction or is in the final engineering or permitting stages, Pierson said.
Most of those projects are under fixed-price contracts, so the tariff would probably not have an effect, Pierson said.
“We’re having a renaissance, and we want to continue the momentum that we have,” Pierson said. “Our economy is going to remain strong.”
Domestic producers of steel in the state, such as Benteler Steel in Shreveport, will have an opportunity to increase their sales, Pierson said.
Businesses hope that the tariffs are a short-term solution as the Trump administration has a more long-term strategy, said Stephen Waguespack, president and CEO of the Louisiana Association of Business and Industry.
“We’d like to see other countries lower tariffs,” Waguespack said. “We’re hopeful this is a short-term step.”
Manufacturers already hurting
But Louisiana manufacturers that rely on steel and aluminum are already hurting.
James Hayes is the second generation president and owner of Hayes Manufacturing in Pineville, just outside of Alexandria. The family-owned company has been in operation since 1954 and expanded from a small steel fabrication shop to its current 13-acre facility with 150 employees.
A majority of its business comes from steel manufacturing with the railroad industry as its largest customer. The company produces railroad tank cars. The oil and gas industry is its second largest customer. The company uses about 6 million pounds of steel a year, Hayes said.
Steel prices for the company have risen 23 percent since February, Hayes said.
“It seems like American steel mills, once you just mention about (tariffs), it just gives them an excuse to go up,” he said. “They tend to try, in my opinion, with any kind of excuse that they have.”
One big concern is the availability of steel, making immediate deliveries more difficult, Hayes said. Hayes Manufacturing has searched steel warehouses and took a gamble at the beginning of the year. The company booked with a particular warehouse for the main steel it will use throughout the year, bringing some stability to price and supply.
But next year could be a different story, Hayes said.
“We may not be able to get domestic steel in time,” he said. “Now, that’s a big problem.”
Full support for Trump
Hayes hasn’t decided if the tariffs are a good thing or a bad thing. He is, however, 100 percent behind the president.
“You have to suffer a little bit to ultimately to reach the goal you want to,” Hayes said. “If that’s what it takes to put the United States back on top and not be taken advantage of so much on the trade deficit that we have, I want to do our part as well.”
Don Fowler, president and CEO of AFCO Industries, is concerned about the availability of metals. The Alexandria-based home building materials company with facilities in other states consumes about 16.5 million pounds of aluminum a year.
The Trump administration imposed sanctions against Russian-based Rusal, the world’s second-biggest aluminum producer, in April. The producer is working to get the restrictions lifted.
For weeks, a metal panic
AFCO went from receiving 40 logs of aluminum a month to 20. The company was almost without the metal, causing a panic for several weeks, Fowler said.
“It’s kind of like being adrift on the ocean. Water, water, everywhere, just nothing to drink,” he said. “There is plenty of aluminum in the world, you just can’t get your hands on it in the US.”
AFCO has the metal it needs until the end of the year but it came at a price significantly more expensive than what the company is used to. It passes those customers, he said.
AFCO is trying to decide if it will shop for international metals through a broker or if it will turn to domestic suppliers.
Globally, the price of aluminum is falling. As that price falls, it becomes more costly for domestic companies to produce aluminum because it is energy-intensive to produce, Fowler said.
Tariffs ‘not exactly healthy’
“It does put us in a situation now where you’ve got to be very concerned about if I go to a domestic producer will they be able to consistently produce a product I need or do I really need to split this up,” he said.
At first, Fowler thought the tariffs were a negotiating ploy to get China to come to the table and to help with North Korea. He didn’t think they would be enacted.
“I’m not in support of these tariffs,” he said. “It’s not healthy for AFCO.”