Trade wars at home: 
Steel winning, soybeans losing locally

Storage silos filled with soybeans aren’t good for local dealers and port managers.
Staff Writer

Seven months in, the winners and losers in the trade war with China continue to grow with no end in sight.

That has some worried, even those who agree the trade deficit with China could not be allowed to continue.

“We’re busier than we’ve ever been. You hate what’s happened to some other industries, but the tariffs have helped us, really helped us,” said Chip Gerber, president of Mississippi Steel Processing, a Lowndes County company located on the campus of Steel Dynamics.

“The tariffs on cheap Chinese steel have driven up the demand for American steel and that means more business for Steel Dynamics and more processing business for us,” continued Gerber, whose company is expanding, as is Steel Dynamics.

The steel industry prompted much of the tariff war when the Trump Administration declared it a national security issue and lumped it in with the growing trade deficit the U.S. has with China.

And the steel industry has been one of the biggest beneficiaries of the tariff battle.
Even with the tariffs, U.S. companies that use imported steel and aluminum can petition the U.S. Commerce Department for exemptions from the tariffs.

As of Oct. 11, Commerce had received about 35,000 exemption requests from 807 firms in 46 states, according to the Mercatus Center at George Mason University.

Small companies typically argue they can’t get the product they need from U.S. steel makers.

But even that is a fight.
U.S. steel and aluminum manufacturers filed about 14,750 objections to the exemption requests, according to Forbes magazine, getting many exemptions denied, which in turn has driven up demand for U.S. materials.

That, in turn, has driven up prices and profits.
Although U.S. producers still had a commanding market share before the tariffs, inexpensive foreign imports were causing domestic steelmakers to lose money, lay off workers, and close plants.

U.S. steel plants in 2017 ran at just 72 percent of capacity — below the 80 percent level they needed to be profitable — according to a Commerce Department report that sparked the tariffs.

In March, Trump imposed a 25 percent tariff on products made by foreign steel mills. He initially excluded some U.S. allies but later applied the tariffs to them, too. By then, U.S. hot-rolled steel coil had shot up to more than $850 a ton.

U.S. steelmakers had been able to aggressively raise their prices because demand was improving and the prospect of tariffs on foreign steel meant they didn’t have to worry as much about being undercut by overseas competitors.

Steel mills once again are buzzing, hiring, and turning a profit, according to industry associations.

So far that’s been fine because the higher steel prices haven’t started rippling through the economy for everything from beer cans and canned corn to cars and appliances but economists say it will happen.

And while it hasn’t hit East Mississippi or ports on the Alabama and Mississippi coasts hard, West Coast ports are seeing fewer ships because the tariffs have reduced the volume of imports, and that puts jobs at risk.

“Just handling steel, we’re probably down about 75, 80 jobs,” Port of Stockton, Calif. Director Richard Aschieris told the Longshore and Shipping News. “And those are real, particularly to the people who had those jobs. So, there is a local effect that is dramatic.”

By contrast, Will Sanders, head of the Lowndes County Port, said traffic in and out of his facility is up, mainly because of increased raw materials coming to and products being shipped out for Steel Dynamics.

Meanwhile, American farmers, particularly soybean farmers, have taken it on the chin from China’s tariffs imposed in retaliation for U.S. tariffs on $250 billion worth of Chinese imports.

The United States was the world’s largest producer of soybeans and China was the largest export market for them until China imposed a 25 percent tariff on them.

That market is effectively closed.
Knowing what would happen, soybean farmers begged and pleaded with the Trump administration not to attack China with tariffs, to no avail. U.S. tariffs on about $250 billion in Chinese imports are at 10 percent. Trump plans to increase them to 25 percent in January and to disallow exemption requests.
Trump has tried to assure farmers the tariffs will force China to abandon its unfair trade practices. As of now, some observers fear the Chinese government is on a mission to ensure Chinese farmers will never buy American soybeans again – tariff or no tariff.

As reported by CNN Business on Oct. 24, most soybeans exported to China are used as livestock feed. The Chinese government is encouraging livestock producers to feed their animals less and to use other proteins, and row crop farmers to grow more soybeans.

China has also increased its imports of soybeans from Brazil.
To try to appease farmers, the Trump administration is providing $12 billion in payments, mostly to soybean farmers, but the issue becomes what happens if the Chinese market is lost for years.
That policy debate hits home for Perry Lucas, the manager of the Tom Soya Grain Co. and Clay County Port. While the port handles a diverse list of commodities from crops to gravel, soybeans are a big part of its traffic.

That’s changed this year.

“Oh yes, the tariffs definitely have had an impact,” Lucas said Wednesday. “I haven’t been jumping up and down about it because something had to be done about the trade imbalance and unfair practices. But it’s been a nightmare.

"The Chinese were big buyers of U.S. beans. Any other year it might have been okay but this year, crops in the South got hit by about a week of water damage. Usually you could mix that it with some good beans and sell them overseas. When exports are big, you can hide that 7 to 12 percent of damage. Not this year, it would matter if no damage or all damage,” Lucas explained.

“We’re all sitting on a lot of beans with nowhere to go,” he continued, noting farmers lost about $2 a bushel in price because of the lack of demand. “It’s unnerving right now. We wonder if we will be sitting here next fall with these beans. We are working on some things, but it’s a worry,” he stated.

Crushing plants that have been calling have offered low-ball prices, knowing places like Lucas’ may eventually be willing to sell at a loss rather than hold the product.
Corn, another big product for the port, didn’t suffer this year because it doesn’t depend on the China market.

Instead, Mississippi is considered a corn deficient state, especially the eastern part, meaning corn raised in the state stays in the state.That’s what makes it so different from soybeans.

“The trade imbalance couldn’t continue…but it’s tough. We just hope the negotiations will work out and we’ll get back to business and trade,” Lucas concluded.