International conflict spells consequence for Iowa’s ag industry

Madeline Mcgarry

An increasingly contentious conflict brewing over 6,000 miles away from the pork capital of the country may have serious implications for the prosperity of Iowa’s agriculture industry.

In recent weeks, President Donald Trump has expressed frustration with other nations who have not contributed to the United States’ effort of curtailing North Korea’s growing nuclear threat.

However, following the recent passage of the economically straining sanctions against North Korea with the United Nations Security Council, China has begun to limit the export of supplies to North Korea, but trade hasn’t stopped completely.

As the discord between the U.S. and North Korea intensifies, so have the discussions surrounding the economic implications that would result from destabilizing Asia-Pacific trade agreements.

Chad Hart, associate professor of economics and crop markets specialist for Iowa State University Extension and Outreach and the Center for Agricultural and Rural Development, has spent much of his career researching international trade policy within the realm of agriculture.

“Ceasing trade with China would have a major short-term impact on agricultural markets. China is one of our top two markets, going back and forth with Canada, with a rough value of $20 billion per year in ag trade,” Hart said.

The U.S. exports agricultural products to China more than any other country in the world annually, totalling $21.4 billion in soybeans, grains and pork, among other commodities. In addition, the U.S. receives $4.3 billion in agricultural imports from China each year.

“The loss of that market would be a major blow and it would take some time to find additional markets to make up for that loss,” Hart said.

In the event that the U.S. cuts ties with its primary trading partner, the potential for cultivating an exchange relationship with new countries is highly variant between the short-term and long-term impacts that would result from the discontinuance.

Dr. Wendong Zhang, an Iowa State extension specialist in applied economics and Center for Agricultural and Rural Development affiliate, projects that the ability for the U.S. to supplement the loss of a partnership would be unlikely.

“In the short run, China would be an indispensable trading partner for the U.S. agricultural economy,” Zhang said.

Similarly, Jia Cao, third-year doctoral student in macroeconomics, suggests that the current relationship between China and the U.S. is close to irreplaceable.

“Growing trade relationships with other countries cannot offset the result of losing a major trade partner like China. Why does Walmart import so many products from China every year? Because China can supply those products with the lowest prices in the world,” Cao said.

However, the long-standing result of ceasing trade with China could potentially lead to the establishment of new relationships.

“In the medium-to-long term, the cessation of ag trade between China and the U.S. would expand other existing trade relationships … and force other trade relationships to develop,” Hart said.

Cao, a graduate of Wuhan University in China, believes that the effects of adjusting trade relations with China would result in a major challenge for U.S. agriculture producers.

“After ceasing trade with the U.S., China can buy soybeans from Brazil and buy beef from Argentina or Australia,” Cao said. “But it is difficult for U.S. farmers to find such a huge buyer to replace China.”

When it comes to assessing the potential effects resulting from an outbreak of war on the northern peninsula, nations in close proximity may subsequently be impacted by the implementation of military operations. South Korea, a principal trade partner to the U.S., receives $6.2 billion in U.S. agricultural exports, including beef, corn and pork.

Zhang considers the agriculture industry to be a more robust component of international relationships that “tends to be on the safer side” during trade wars.

“While wars tend to move countries to be more self sustaining, trade continues during wars as well. Armies have to eat, and in times of war, ag trade can become a military necessity,” Hart said.

Zhang, developer of the Iowa Land Value Portal, projects that a disruption to a U.S.-China trade relationship may also affect the value of Iowa land parcels.

If agricultural trade is significantly impacted, that will hurt the agriculture income, and that will erode the confidence of the world economy, resulting in increased interest rates for Iowa’s farmland, Zhang said.

Zhang claims that the direct impact from international unrest on farmland values in the state of Iowa is comparatively more susceptible to the local real estate climate.

“Land markets tend to be localized. Although it is driven by global forces, it is mainly driven by supply and demand,” Zhang said.

Earlier this month, Zhang and economics professor Dr. Dermot Hayes welcomed members of the Chinese Consulate to Iowa State following the announcement of a new center dedicated to studying Chinese agriculture policy.

Working in collaboration with the Chinese Academy of Agricultural Sciences, Zhang said, the economics department will work to introduce major developments of China’s agriculture to U.S. stakeholders and policy makers.

“You can never overestimate the importance of international trade to the health of the U.S. ag economy,” Zhang said.