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Trump's trade war divides his own base with problems for soy, but perks for steel

Soy farmer Rod Gangwish watches over his crops in Shelton, Nebraska, on June 29, 2018. (Mainichi)

CENTRAL CITY, Nebraska/TWO HARBORS, Minnesota -- After U.S. President Donald Trump's administration slapped tariffs on 500 billion U.S. dollars (5.5 trillion yen) of Chinese products on July 6, residents of steel towns are rooting for the protectionist policy, while angry soybean and corn farmers are bracing for counterattacks from Beijing, effectively creating a schism in the president's base.

With the upcoming midterm U.S. congressional elections this fall and the 2020 presidential reelection bid in front of him, Trump has seemingly decided to solidify his base among iron workers. At the same time, he is placing a high-stakes bet that farmers, who have long been supporters of the Republican Party, will not switch sides so easily despite their anger over his trade policy decisions.

Worried Farmers

Located in the American heartland, Shelton in central Nebraska is surrounded by soybean and corn fields under a blue sky for as far as the eye can see. Nebraska boasts the third-highest agricultural output in the United States. One third of the harvest is exported overseas, and the biggest market is China. As such, Nebraskan products are now targeted by China's retaliatory tariffs against the Trump administration's regulations. Naturally, people here are worried and dismayed.

"Agriculture is a whipping boy," lamented Rod Gangwish, a farmer growing soybeans and corn in vast fields covering about 970 hectares. The additional tariffs the Trump administration is introducing against Chinese products are a retaliatory measure against China's intellectual property violations. Gangwish sees farmers like a boy being whipped instead of a "prince" -- the U.S. IT companies encroached upon by the Chinese violations.

Casualties of the trade war between Washington and Beijing can be found across Nebraska. In Central City, some 70 kilometers northeast of Shelton, the firm "Preferred Popcorn" was hit by a request from its Chinese business partner, who makes up 15 percent of its sales revenue, to suspend shipments in June. It was particularly hard for the company, which supplies popcorn to movie theatres around the globe, as a new factory doubling the production capacity had just been completed.

Back in early April, Trump reportedly told Agricultural Secretary Sonny Perdue, "You can promise your farmers we are not going to sacrifice them in the escalating trade war. We're going to take care of farmers." That promise, however, is being broken, and those farmers, many of whom supported Trump in the 2016 presidential election, are well aware of the broken promise.

"With lower prices for virtually every commodity we produce on Nebraska's farms and ranches, the last things we need is more uncertainty. Unfortunately, nothing creates more than trade disputes," Steve Nelson, president of Nebraska Farm Bureau, wrote in a June 28 email to some 61,000 member farmers. "It's critical the President and Administration understand there is no government assistance program that could ever replace lost markets from a major misfire in U.S. trade policy."

Nelson and Nebraska Gov. Pete Ricketts met with Perdue and other officials in Washington to seek a way to avoid the impending trade war. They received no concrete promises. This tough trade posture is triggering criticisms against the president -- even among his supporters.

Mark McHargue, a farmer in Central City and the vice president of the Nebraska Farm Bureau, praised President Trump for "doing a lot of great things," such as cutting down on various industry regulations and tax cuts. "But, on the trade side ... I don't think that it's the right strategy," said McHargue. "It's just been this, this escalating, then at some point, somebody has to cry 'uncle' and say no more."

McHarge pointed to charts of market prices for soybeans and corn, and the curves on the screen moved up and down in response to the deepening trade war -- fluctuations began in late March, worried about a coming battle, and prices plummeted 17 percent for soybeans and 11 percent for corn between June 1 and July 2.

In the 2016 presidential election, about 60 percent of voters in Nebraska sided with Trump, and the local agricultural industry was positive about his promise of seeking "fair trade" with foreign countries. However, when the Nebraska Farm Bureau interviewed some 170 farmers in four locations across the state, opinions toward the Trump administration were divided. A famer angrily accused the president of being "crazy," while another was more understanding, arguing that they need to be patient until trade issues were resolved.

McHarge said the situation is near "a tipping point," suggesting that farmers will become more critical of the administration unless agricultural product prices do not return to normal by around September.

Since inauguration, the Trump administration has taken a hardline stance on trade policy. It left the Trans-Pacific Partnership free trade pact right out of the gate, and pushed for a renegotiation of the North American Free Trade Agreement (NAFTA) with close allies Canada and Mexico. The TPP, promoted by Japan and the previous U.S. administration of President Barak Obama, would have brought some 380 million dollars of profit into Nebraska. The damage caused by a departure from NAFTA would be immeasurable, because Mexico and Canada are ranked second and fifth, respectively, on the list of Nebraska's major export markets. McHarge, who has been visiting Canada and Japan to promote Nebraskan products, is worried. He suggested that if negotiations with China do not go well, then the U.S. should finalize the renegotiation of NAFTA as soon as possible and rejoin the TPP.

Happy Steelers

But the trade war between the U.S. and China looks completely different from the perspective of residents in "rust belt" towns, where the steel and related processing industries have historically been the mainstay of the local economy.

Mayor Chris Swanson, 41, of Two Harbors, Minnesota, a port town on Lake Superior in northern Midwest, is excited. "He (President Trump) is a genius. I'm talking about his economic policies. He accomplished a lot," Swanson said. While former President Obama did not cause the region's downturn following the 2008 Lehman shock that devastated the U.S. economy, "He wasn't able to get us out of the problem," the mayor said.

With new restrictions on the import of steel products, this iron ore processing factory is running at full capacity in Two Harbors area of Minnesota, on June 27, 2018. (Mainichi)

The main reason behind Swanson's excitement is a recent boom in the local economy, brought about by the Trump administration's additional tariffs on foreign products. The measure created a high demand for domestically produced steel, and steel mills around the nation resumed operations as price hikes pulled their operations back out of the red.

For Two Harbors, this has led to more business. The port is a shipment gateway for iron ore from the Mesabi Iron Range in northeastern Minnesota to steel mills in Pittsburg, Pennsylvania, in the east, or Cleveland, Ohio, in the Midwest. Now the port welcomes as many as three freighters carrying iron ore. This is a big difference before President Trump. The port had days with no iron ore shipments, as the U.S. steel industry fell into the shadow of cheaper Chinese steel products.

Swanson pointed to a local shop selling smoked fish, saying, "This is another sign of economic boom." According to the mayor, the shop had to close its doors four years ago amid an economic slowdown, but reopened recently expecting a customer surge with local iron ore processing factory in full-scale operation. At a nearby hotel, many workers were also making preparations for the reopening the facility, and the dilapidated roads were being fixed.

"There were a lot of people in this town that were being foreclosed on and lost jobs. There was a lot that went on during that time (after the 2008 Lehman shock) that was really harsh," Mayor Swanson explained. "I say that whether you like President Trump or dislike him, his economic policies have been very strong. This economy here matters. Steel is very important."

Kelsey Johnson, 37, president of the Minnesota Iron Mining Association in Duluth, northern Minnesota, also feels the "Trump effect."

"We're working at full capacity right now, which is a very different situation than we've had in more than 30 or 40 years," Johnson explained. The steel industry had lagged behind the car and housing industries in recovering from the 2008 recession. "It (iron mining) has been an industry that has long been forgotten as part of America. I think when President Trump made this move, it helped people feel like their jobs are important again."

But not everyone in Minnesota is happy about Trump's trade policy. In Chisholm, some 100 kilometers north of Two Harbors, Scott Allison, 58, president and CEO of Minnesota Twist Drill, said he was having many a "sleepless night."

After the administration imposed an additional 25 percent tariff on overseas steel products in late March, he was informed by a Japanese manufacturer of special steel used in the drilling bits his company manufactures that they had to increase the price of their product by 25 percent. Allison had to give up doing business with the company, which had been a supplier for many years.

Drilling bits were not targeted by the additional tariffs, and cheaper Chinese products may overwhelm their pricey American counterparts in the future. To continue his operation, Allison has had to switch to a Chinese steel product, a choice he had avoided for some time.

The purpose of the additional tariffs was to stop Chinese companies from dumping their products on the U.S. market, but the measure has instead cornered some U.S. manufactures instead. Asked about the possibility of moving his production base overseas, Alison answered, "I have 130 workers. It will never happen as long as I am running things." But then, he added, "I don't know about the future. Maybe I will be forced to reduce the number of people."

(Japanese original by Sumire Kunieda, New York Bureau, and Kenji Shimizu, North America General Bureau)

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