Tennessee farmers brace for financial impact from China trade war

Pig farmer Jimmy Tosh is worried about the impact of a trade war on his earnings. He will get hit from the increased cost of steel when he is building new barns and the lower revenue on pork.

Jamie McGee, USA TODAY NETWORK – Tennessee

April 16, 2018

HENRY, Tenn. — Jimmy Tosh, a third-generation farmer in this northwest Tennessee town, plans to add 30 new barns to raise pigs in and expand production for his family-owned farm that employs 380 individuals. His plans are less certain now as he looks at the increase in steel prices and a smaller market for pork — the results of a tariff confrontation with China.

Rebar pricing has increased 17 percent since the steel tariff was announced, making the new barns more expensive, he said. With China the third largest market for U.S. pork, Tosh said he expects revenue to decline.

“That is a market that is going to be hard to be replaced,” Tosh said, sitting in an office decorated with a pig clock and pig-themed pillows. “If we have higher costs and lower revenues, that equals less profit. We’ll have to rein in expansion.”

Tosh is among Tennessee farmers concerned about the tariff showdown underway between President Donald Trump and China. When Trump announced new tariffs on imported aluminum and steel, China retaliated with an up to 25 percent tariff on 128 U.S. products, including soybeans, pork, cotton, tobacco, beef and cars — each significant crops and products in Tennessee.

The conflict could hurt manufacturers and farmers, said Tennessee Economic & Community Development Commissioner Bob Rolfe. He emphasized the strong relationship Tennessee has with China and in terms of recruiting companies to the state. Eighteen Chinese companies have Tennessee locations and 13 have expanded to the state since Gov. Bill Haslam took office in 2011. China is Tennessee’s third largest trade partner.

“We’ve been very successful and been aggressive in recruiting not only Chinese companies but other companies across the globe to come to Tennessee,” Rolfe said. “The primary concern remains that these tariffs are going to impact business decisions in Tennessee. When you start this tariff war, you are going to impact your cost of raw materials and then it impacts the price. Then it impacts hiring decisions and expansion decisions.”

‘We are certainly not for a trade war’ Trump’s decision to impose steel and aluminum tariffs of 25 percent and 10 percent, respectively, were an effort to protect those industries in the U.S. and to correct the country’s large trade deficit. Since imposing the original steel and aluminum tariffs in March, Trump has threatened to expand their scope to an additional $100 billion in Chinese products.

Rolfe said Tennessee exported $2.5 billion in goods to China last year, a 14 percent increase over 2016 totals, and imports $24 billion in goods from China, most of which was computer and communication equipment. He is not concerned by the imbalance, he said.

“We have a trading relationship,” he said. “We are exporting and importing and yes, there is a big imbalance, but that’s not something we are focused on. … Maybe it resonates with those that don’t really understand international trade policy and trading partnerships.”

Rolfe said the tariff conflict is likely to give pause to Chinese companies considering expansions in the U.S. A trade war could disrupt job growth at a time when one-third of jobs created through Tennessee economic development incentives were from foreign direct investments and 80 percent were in manufacturing, an industry reliant on steel. With Tennessee increasingly becoming an automotive-centric state, the steel and aluminum tariffs will affect that sector.

Electrolux in Springfield announced in March it would halt plans for a $250 million expansion because of the steel tariffs.

“We are certainly not for a trade war,” Rolfe said. “We are not for higher tariffs. These higher tariffs on both sides of the equation result in higher costs that are ultimately absorbed by the end consumer.”

Tennessee Agriculture Commissioner Jai Templeton said his department is actively seeking additional trade opportunities with other countries to cushion the impact of Chinese tariffs on Tennessee farmers.

“International relations and trade are key factors to the continued success of agriculture in this state,” Templeton said. “Maintaining this critical trade partnership with China is extremely important.”

China is one of Tennessee’s largest foreign markets for agricultural products, Templeton said.

Of the nearly $1.5 billion in farm commodities produced in Tennessee in 2016, soybeans were the largest crop, at $422 million. Nearly $100 million was cotton, $78 million was tobacco, and $23 million was in pork.

Tennessee Farm Bureau President Jeff Aiken said China represents 30 percent of the U.S. soybean market.

“It’s very concerning for Tennessee agriculture,” Aiken said. “Most farmers focus on providing food and fiber for the world and paying their bills and raising their families. Now, they are going to have the added burden of, are they going to have a market for their products? The long-term concern would be, if we lost those markets, do we ever regain them?”

The flap over tariffs comes as farms struggle with margins. Farm income has decreased by 50 percent in the past four years, Aiken said. Access to foreign markets helps U.S. farmers and consumers.

“Those markets help farmers remain in business,” Aiken said. “They also help the prices of products the U.S. consumers pay for remain reasonably priced. … If our farmers are forced out of business, where does our food come from?”

Alan Meadows, a fifth-generation farmer in Halls, Tennessee, has 2,500 acres he farms with his father, and two-thirds of the farm consists of soybeans. He expects China to buy more from Brazil now that the tariffs are in place on U.S. soybeans.

“Our margins are already pretty slim over the last two to three years because of the farm economy,” Meadows said. “The China market is something we have worked, as the soybean association, for years to establish. The tariffs are putting my livelihood, so to speak, in jeopardy. We can’t afford to lose our Chinese market.”

Trade war leaves farmer with uncertain expansion plans.

Tosh Farms was built in 1913 by Jimmy Tosh’s grandfather, but Jimmy Tosh is the one who began the pig operations. In 1994, there were five employees. Today, a staff of 380, plus about 200 contract farmers, produce 750,000 pigs in a year and farm 1,600 acres of row crops. The pigs are raised in long temperature-controlled barns, from wean to finish, and Tosh technicians make sure they are fed and healthy a few times each day.

Tosh describes himself as a “firm believer” in free trade and doesn’t see the trade deficit with China as a significant problem. He sees nothing positive coming from the tariff confrontations. While some industries have suffered because of Chinese manufacturing tactics, the nation should be focused on job training for them, not tariff wars.

China is the third largest market for pork and also buys parts not used in the U.S.: pig feet, livers and hearts.

Building barns will be more expensive with the steel and aluminum tariffs, along with upgrades for pickup trucks and tractors, he said. He said economists are forecasting the pork tariff will cost $6 to $8 a pig, a cost that climbs into the millions when 750,000 pigs are tallied.

Jeremy Walters, who works with his brother, Adam Walters, at Tosh Farms, raises about 10,000 pigs as a contract farmer, in addition to working as a service manager. He said he often thinks about expanding his contract, but his individual expansion also will be affected by steel costs.

“I’m not worried about my job here,” Jeremy Walters said. “But if I wanted to build more barns, it may slow that. It may slow some future expansion.”

Many of the red districts nationwide that voted for Trump rely heavily on agriculture and manufacturing, raising questions about how the tariffs will affect Trump’s re-election hopes.

Adam and Jeremy Walters said they voted for Trump mainly out of distaste for Hillary Clinton, not devotion to Trump. Adam Walters said whether the tariffs will influence his vote going forward will largely depend on the extent of their impact.

“It would depend on how long it lasts, or if this tariff is just him moving some chips on the board, trying to get better leverage for something else,” Adam Walters said. “I’d like to think there was a good reason for it.”

Jeremy Walters acknowledged the possibility that the trade confrontation could dampen support from the base that propelled Trump into the presidency.

“That’s what got him in office, I guess, what you call the red-blooded Americans,” Jeremy Walters said. “If the red-blooded Americans start to suffer, well … .”

For Tosh, a lifelong Republican, the tariffs are certain to affect his vote, he said.

“It’s becoming much more difficult to be a Republican in this type of an environment,” he said. “The Republican Party has always stood for free trade. They seemed to have moved away from it.”

Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.

Tennessee-China trade

  • Tennessee exports $2.5 billion in goods to China, up 14 percent since 2016.
  • Tennessee imports $24 billion in goods from China.
  • China is Tennessee’s third largest trade partner.
  • Tennessee exported $1.5 billion in farm commodities in 2016:

Soybean exports: $422 million

Cotton: $96 million

Tobacco: $79 million

Corn: $87 million

Beef: $53 million

Pork: $23 million

Data source: USDA

Story credit https://www.jacksonsun.com/story/money/2018/04/16/tennessee-farmers-china-trade-war-tariffs-imports/489173002/

Categories: Uncategorized