The tariff tiff between the U.S. and China will hurt Wyoming’s lagging agriculture and energy sectors and could dog consumers as well, experts say.
China last week announced tariffs on U.S. hogs and beef, news dampened only by Wyoming’s small pork industry and that China’s cattle market is a year old. It opened last year after a long ban on U.S. beef due to fears over mad cow disease.
But Chinese tariffs could compound problems in the state’s agricultural sector where farm income dipped into the red in the fourth quarter of 2017. That was the first time in more than four years that the indicator went negative.
It took little time last week for agricultural markets in Wyoming to react. Live cattle and cattle futures were both “sharply lower,” NorthernAg.net reported Friday. “Part of the selling may have stemmed from the latest threat of U.S. tariffs against China,” the week-end roundup said. Lean-hog futures “settled moderately lower,” due in part to “export uncertainty.”
The poor outlook comes at a challenging time for ranchers, said Wenlin Liu, principal economist in the state’s economic analysis division, who documented the negative farm income in his most recent economic summary. For the fourth quarter of 2017, ”farm earnings were negative for the first time in many years,” he said. They fell below zero from a 2014 high of more than $360 million. “That’s directly related to low beef prices,” he said.
In Wyoming’s largest sector — energy — the cost of equipment used in mining and oil and gas operations may increase if the Trump administration imposes its tariffs on Chinese steel, a state economist said. Further, should a trade war erupt, consumers in general would be the likely losers, experts said, with effects seen across broad swaths of the state economy.
Given the fast-changing tariff and trade landscape and the unpredictable nature of the president and his administration, firm predictions are difficult to make, said Jim Magagna, executive vice president of the Wyoming Stock Growers Association.
“It’s very fluid,” Magagna said. The president can move in one direction one day and another the next, he said. “It’s wait-and-see.”
A quick look at Wyoming beef and pork
Wyoming ranks mid-field among all states in annual hog production and far behind giants like top producer Iowa, which sees some $6 billion annually. Wyoming production totaled $57 million in 2015, according to Pork Checkoff, an industry organization. But slipped to $35.1 million last year, according to the U.S. Department of Agriculture.
Cattle and calves accounted for $1.1 billion in the state last year, according to the federal agency. Seen in the context of the state’s $37.9 billion GDP in 2016, (Federal Reserve economic data) pig farmers are about one thousandth of the state’s revenue engine, cattle about 3 percent. Agriculture is the state’s third largest industry and livestock makes up 70 percent of it.
“Anyone with a hog and swine farm is going to see a drop in their income … if one of their markets imposes a tariff,” said Dr. Anne Alexander, associate vice provost of academic affairs for undergraduate education at the University of Wyoming. “There is therefore a direct reduction on their income, an impact on their communities.”
Economic swine flu could spread. “Retaliation on any American agricultural export will impact other commodities,” a director with the National Cattlemen’s Beef Association told the Western Livestock Journal last week. Said economist Liu “If they have a tariff, we export less.”
Alexander agreed. Among cattle ranchers, “you’ll see a similar impact,” as with hog farmers. “I imagine it was probably cause for celebration when that [Chinese] market opened up — it’s a very large market.
“There’s a known correlation between income and meat consumption,” she said, and China’s standard of living is rising. “Beef is something the U.S. is well-known for. I’m sure that [market opening] was a big positive thing for our beef producers here, that they were going to have a large avenue.
“To unfortunately have that source of income cut off will affect them,” she said, “their incomes will drop.”
Asia still holds promise, Magagna said. “While we see great potential growth in that [Chinese] market, it’s not a market we’re dependent on,” he said. “We do have some outstanding access to some other countries, like South Korea.”
The consumer may be next
The Trump administration’s imposition of tariffs poses “the largest downside risk on the horizon,” Liu wrote in his summary. “These actions may increase the likelihood of a trade war, and potentially destabilize the market,” he said of the global and U.S. economies.
Trade wars have ripple effects beyond specific economic sectors, Alexander said. “Generally, trade disputes can lead to higher prices for your consumers, too,” she said. “No one wins. And it can cause inflation, which I don’t like.” She urged negotiations. “I think that is wise.”
Industries in the U.S. have legitimate complaints against China, she said. “Resolving it with tariffs — it’s going to DEFCON I.”
China is trying to indicate that it’s a growing world power and a large market, she said. If the U.S. feels discomfort with trade deficits, “they have the ability to inflict more discomfort… “
Perhaps China is “signaling their heft and market power to us — trying to say we’re better partners than enemies. It’s pretty clear what they’re trying to say is ‘if you want to fight, we’ll fight.”
There’s more potential trouble on the horizon, Magagna said. That could happen if president Trump decides to upset the North American Free Trade Agreement, a pact he’s groused about.
“Anything China does for the beef industry is overshadowed if NAFTA were to fall apart,” he said. Trump has expressed wavering views on the trade agreement with the county’s northern and southern neighbors and “he may just pull out of it. That causes much more concern today than what we’ve seen in the China situation.”
There’s no certain effect of the trans-pacific tiff on Wyoming’s second largest economic sector — tourism. But wrangling over trade could be a precursor to resolving a longstanding U.S. gripe about China — its undervalued currency, Liu said. If China agrees to increase the value of its currency, tourists from the Far East would find it cheaper to travel to the U.S. to visit places like Yellowstone National Park. In 2016 1.2 million Chinese visited national parks in the U.S., the National Travel and Tourism Office of the U.S. Department of Commerce reported.