The U.S. is imposing a 25 percent tariff on up to $50 billion in Chinese goods. The Trump administration claims theft of intellectual property and unfair trading practices is the reasoning behind the tariffs. China is responding to the U.S. by hitting Trump’s base in the agriculture and automobile industries.
“Trade is complex. A good trade deal for one sector can pose risk for the other,” said Brandon Willis, a professor of applied economics at Utah State University and senior advisor to the former secretary of agriculture Tom Vilsack.
“If you take a step back," he said, "the U.S. runs a trade deficit annually around $500 billion. Agriculture is a bright spot with a $23 billion surplus predicted in 2017. When we talk about automobiles and when we talk about intellectual property, we talk a lot about different sectors that are not winning the trade game.”
Willis said as of March 1st when the tariff disputes started, hog futures have dropped $18 an animal. In one year that is over a $2 billion loss to pork producers.
“What people have to remember is that the farm economy is fragile right now,” Willis said. “It’s not like it was six or seven years ago when things were booming. Farms are coming out of two or three years of losing money and you’re going tack this on top, this is going to be tough for them to swallow.”
Dillon Feuz, the department head of applied economics at Utah State University, said the recent trade disputes are driven mostly by politics instead of economics. The disputes have psychological impacts on markets because there is a fixed amount of product for the short run.
According to Feuz, China will still need pork. They could buy from the European Union, which leaves other export markets the U.S. can take advantage of. However, it’s uncertain that will actually be the case.
“When you have uncertainty, you’re going to have prices moving lower and not higher,” Feuz said. “In the short term, a lot of it is just the uncertainty and generally puts a downward pressure on prices.”
Willis and Feuz agree that implementing risk management tools into farm and ranch operations is the best way to protect the pocketbook. Feuz said diversifying an operation is usually a good hedge against risk, but it’s still a risk.
“If you diversify too much and go away from specialization, then sometimes your management and your equipment may not be as well suited for a diverse operation,” Feuz said. “You have to weigh that, balance that out.”
Future’s markets and long-term contracts are other methods of securing long-term financial gain, but Feuz said producers still need to pay attention to markets because everything could change overnight.