Soybeans... 05/16/03

Advocate staff photo by Bryan Tuck. A Mowata soybean farmer holds out a handful of soybeans.

A Louisiana soybean farmer is bracing for a $150,000 hit annually from China's expected retaliation against U.S. tariffs set to go into effect Friday on $34 billion in Chinese goods.

Chinese officials vowed again Thursday to level similar charges against a range of American-made products, a move that will have a major impact on Louisiana as the nation's second-largest exporter to China of goods made here or shipped through the state's ports.

The list of products targeted with tariffs were methodically thought out by both countries, noted Jerry Hingle, president and CEO of the New Orleans boutique consultancy International Trade Associates. China “surgically” taxed products that would hit America’s heartland — in this case, many of its farmers.

In all, Louisiana exports $7.9 billion worth of products to China, according to Louisiana Economic Development data, led by $5.7 billion in agricultural products, $1 billion in oil and gas products and $814 million in chemical products, which are susceptible if the trade war escalates.

Of that, more than $5.7 billion in Louisiana exports to China are subject to new tariffs, according to the U.S. Chamber of Commerce. 

Louisiana's farmers plant more than a million acres of soybeans, Hingle said, a product high on China's list of retaliatory tariffs. Between the soybeans produced here and those grown upriver and exported through the state’s port system, China’s tariffs will hit Louisiana soybean trade hard, he said.

Louisiana also imports $1.3 billion worth of Chinese products, the biggest category being chemicals.

Raymond Schexnayder Jr., past chairman of the Louisiana Soybean and Grain Research and Promotion Board, said China's retaliatory tariffs will reduce revenue at his Erwinville farm by $100,000 to $150,000 annually. About 2,200 acres at his 3,200-acre farm consists of soybean fields.  

"I hate to see negative news like this," he said. 

Schexnayder said there’s been speculation President Donald Trump is using the tariffs as a bargaining chip for better trade deals with China. Trump made reducing the trade deficit with China a key part of his presidential campaign.

“The bad news is that with tariffs like that, it ends up costing us more in the long run,” Schexnayder said, because the U.S. is no longer seen as a reliable supplier of a product. 

Trump has said steps need to be taken to reduce the U.S. trade deficit, which hit $566 billion last year. He's called for rewriting trade agreements and cracking down on what he called abusive commercial practices by U.S. trading partners, including longtime allies such as Canada.

The impact of the tariffs were being felt months before they took effect. Trump signed an order on March 22 that paved the way for import tariffs on Chinese goods and led the country to threaten retaliatory measures. Since mid-April, soybean prices have fallen by 20 percent, according to an Iowa Public Radio report. A 60-pound bushel of soybeans now trades at $8.48, the lowest price in more than two years. 

Trump signs order punishing China on trade; Louisiana exports could be impacted

“It’s very significant,” Hingle said. “The soybean farmers are hurting. They’re seeing a drop in the value per acre that totals tens of millions of dollars.”

While its too late to do anything about the crop that will be harvested later this year, if the tariffs remain in place Schexnayder said he may be forced to plant less soybeans next year or hire fewer workers to help with the harvest. 

Why a trade war with China could disrupt billions in commerce from Louisiana’s top export market

According to the U.S. Chamber of Commerce, a vocal critic of Trump’s tariffs, more than half a million Louisiana jobs are supported by trade.

Trade wars can draw blood in several ways. Exporters face taxes on what they ship across the Pacific. This makes their products more expensive and less competitive.

And importers must pay more for the foreign machinery and components they buy — and then decide whether they can afford to pass along those higher costs to their customers.

In choosing the Chinese goods to tax, the Trump administration tried to limit the impact on American consumers. It aimed instead mainly at industrial products. Yet those tariffs will hurt American companies that rely on Chinese-made components and machinery.

Louisiana’s chemical industry, the source of billions of dollars worth of megaprojects in recent years on the back of the U.S. shale boom, is also threatened by the brewing trade war, said Greg Bowser, president of the Louisiana Chemical Association.

“If it ends up being a trade war, my industry, I don’t think we win that,” Bowser said.

Wanhua Chemical last year announced a $1.12 billion manufacturing plant in Louisiana, the second major investment from mainland China in Louisiana. That company's U.S. subsidiary is already in limbo after the Trump administration slapped tariffs on imported steel and aluminum earlier this year.

James Newport, general manager of Wanhua Chemical U.S. Operations LLC, said the facility is facing "tens of millions" of dollars in increased costs because of the tariffs. Wanhua is constructing key parts of the plant in China, using steel that will now be hit with tariffs. 

"We're likely to face a significant increase in costs that were not part of the original capital investment, which raises concerns for our project," Newport said. 

The firm is seeking an exemption from the tariffs, and has not yet made a decision on a location, Newport said. 

Jerry Becnel, president of JW Allen & Co., a Kenner-based freight forwarding company, said while he appreciates Trump’s efforts to reduce the trade deficit, he doesn’t know if those tactics will generate the desired results. “The administration is trying to right some things that have been wrong for a while,” Becnel said.

A significant portion of the clients that JW Allen helps are importing products from China. For now, Kristi App, a vice president for the company, said it is “very fortunate” that only one of its clients is importing products that fall under the higher tariffs. That client is appealing to customs officials, arguing that its products shouldn’t be categorized as falling under the list of products designated by the Chinese government for higher tariffs.

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China is the second-largest Asian investor in Louisiana, with $2.97 billion in capital investment since 2003, according to LED. That total comes from two projects: Yuhuang Chemical’s $1.85 billion methanol complex in St. James, and Wanhua’s proposed $1.12 billion manufacturing center.

The relationship with China is also a delicate one, and more foreign projects are on the “drawing board” and could fall apart as a result of the trade battle, Bowser said. 

"All of this spells uncertainty," said LED Secretary Don Pierson, adding Louisiana is still in a good position to land industrial projects. "And that's a challenge for us. We're on a great track in Louisiana with a strong economy that's seen a renaissance in our industrial construction that's underway."

Follow Sam Karlin on Twitter, @samkarlin.