Iowa could lose big if Trump moves lead to trade war, experts say

President Donald Trump's decision to jettison the Trans-Pacific Partnership deal and renegotiate U.S. trade with Canada and Mexico could lead to a trade war that could put Iowa in the cross-hairs, worried state leaders told the Register on Monday.

Agriculture and manufacturing, two industries that help form the foundation of Iowa's economy, would be among the first casualties because of Iowa's heavy dependence on exports.

"Extreme caution needs to be taken," said Craig Hill, president of the Iowa Farm Bureau Federation, the state's largest agriculture group, with about 159,000 members.

Trump signed an executive order Monday backing out of the Trans-Pacific Partnership, a proposed 12-nation agreement also known as TPP that would have covered 40 percent of the global economy, saying the withdrawal was a "great thing for the American worker."

RELATED: Arguments for and against the Trans-Pacific pact

In 2015, Iowa exported $7.8 billion in commodities to the 11 countries that were to be part of the TPP. Through November of 2016, Iowa exported $6.8 billion in commodities to those same countries.

On the same day he effectively killed the TPP, Trump also said:

• He would institute a "major border tax" that would discourage companies from making products outside the United States.
• He is setting up meetings with the leaders of Canada and Mexico, the U.S. partners in the North American Free Trade Agreement. He has vowed to renegotiate the pact to get a better deal for the U.S.

The president also has vowed to slap taxes on the products of any company that moves its factories overseas and then tries to sell them in the U.S.

"I would hope that President Trump wouldn't take action that could start a trade war, given that it would damage the very people who helped put him in office," said Dermot Hayes, an Iowa State University agricultural economist. "But that's just a hope."

Iowa ag leaders said they're disappointed that negotiations spanning years on the Trans-Pacific Partnership agreement are being abandoned.

"We've worked a long, long time on that," said Wayne Humphreys, a southeast Iowa farmer and Iowa Corn Promotion Board member. "We've spent a lot of American resources, meaning taxpayer dollars, trying to make this thing happen."

Charles Sukup, CEO of Sukup Manufacturing, a Sheffield maker of bins and drying systems, said he also backed the Trans-Pacific pact.

"We need to maintain strong relationships with fast-growing Asian countries," he said. "There's a strong competition for influence in Asia between the U.S. and China."

Even Sen. Joni Ernst, a staunch Trump supporter, said she was "disappointed" with the president's decision Monday.

“With one in five jobs in Iowa dependent on trade, access to new markets is critical to our state’s economy," she said. "However, we must not let this stop our country from pursuing increased trade opportunities for our exporters."

David Swenson, an Iowa State University economist, said the biggest loss is the opportunity the Trans-Pacific agreement afforded Iowa.

"Pulling out of TPP creates uncertainty and undercuts expansion into those markets," Swenson said.

Hill and others worry renegotiating trade agreements — or adding tariffs — could spark retaliation and escalate into a trade war.

"Sixty percent of U.S. soybeans are exported, so certainly we're concerned about any change in our trade relationships," said Kirk Leeds, CEO of the Iowa Soybean Association.

Swenson agreed: "No one wins in a trade war.”

In all, Iowa exported $13.2 billion in goods in 2015, with about 12 percent coming from farms, U.S. data shows. About 56 percent of Iowa goods were manufactured machinery, food and chemicals.

"The uncertainty in the marketplace that could come with pulling back from trade agreements is troubling," Leeds said. "We really don't know where this could go."

About 25 percent of U.S. pork and 15 percent of corn is exported. U.S. ag exports reached nearly $130 billion last year.

Losing exports could throw markets into turmoil, with surplus supplies depressing commodity prices, said Hayes, the ISU ag economist.

That comes as Iowa and U.S. farmers have struggled with slumping income. U.S. ag income is expected to fall 17 percent to $66.9 billion in 2016 compared with 2015. It would be the third annual decline.

"It would be really damaging for us, given that so much of our products go to Mexico now," Hayes said.

For example, Iowa now sends about 10 percent of its pork to Mexico.

"We can't afford to lose that. The price implications … would be horrible," Hayes said. "There are other countries that would love our markets there."

John Weber, a Dysart, Ia., pig producer, said he’s concerned about efforts to reopen NAFTA.

"Anytime you open a trade agreement you have to be careful," said Weber, president of the National Pork Producer Council. “Our goal is to stay away from anything that could spark a trade war — or lock out a country.

"I think the Trump administration is smart enough to not upset the apple cart or the economy."

Hayes expects other countries in the Trans-Pacific Partnership — Australia, Canada, Mexico, Japan, New Zealand — will go ahead and hammer out bilateral agreements.

While China isn't part of the proposed pact, it's moving aggressively ahead to establish a trade agreement in the rapidly growing region, said Hayes and others.

"If we surrender TPP, we may also surrender our opportunity to reach that market," said Hill, the Iowa Farm Bureau president.

Hayes recently visited Mexico and found a lot of political anger against the U.S. over rhetoric that Mexico should pay for a wall between the two countries.

"Everyone hopes a trade war will not happen and that cooler heads will prevail," he said.