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Crop farmer Bob Worth plants soybeans on the family farm Thursday, May 17, 2018, in Lake Benton, Minn. Many predict hard times to rival the epidemic of bankruptcies that devastated American farms in the 1980s.Trump's trade dispute is just the latest factor in a longer-term decline in farm income. (David Joles/Minneapolis Star Tribune/TNS)

WASHINGTON — The temporary truce in the trade war between the United States and China may come too late to reverse damage to the agricultural sector from existing tariffs that remain in place.

The Trump administration was set to raise levies from 10 to 25 percent on $200 billion worth of Chinese imports on Jan. 1. That increase is now off the table until March 1 under an agreement the two countries reached over the weekend.

However, protective tariffs remain in force on $250 billion worth of Chinese imports to the U.S., as well as retaliatory tariffs on $110 billion worth of U.S. products sold to China, including soybeans.

“There is no question that getting rid of Chinese barriers to U.S. businesses does help,” said Robert Kudrle, an international trade specialist at the University of Minnesota. “But businesses demand certainty. The Chinese announcement doesn’t mention intellectual property, and they don’t talk about deadlines.”

For farmers like Lance Peterson, who right now cannot break even on the sale of a bushel of soybeans because of oversupply, weather and tariffs, time is running out. Through the first seven weeks of the 2018-2019 marketing year, shipments of soybeans from the U.S. to China are down 97 percent from last marketing year.

“The damage is already done in a lot of sectors,” Peterson said from his farm in west-central Minnesota. “A large number of farmers, including me, are looking to refinance. Suspension (of new tariffs or increases in existing tariffs) does nothing. I’m not making money. I’m just trying to control my losses.”

For agricultural lenders looking at projected soybean prices below break-even levels, the truce “doesn’t really change anything,” said Kent Thiesse, a vice president and farm loan specialist at MinnStar Bank in Lake Crystal, Minn. “It puts things on hold.”

Growing cycles for soybeans will leave farmers “taking it on the chin,” said Russell Price, chief economist for Minnesota-based Ameriprise Financial. He thinks the trade war with China “is going to get worse before it gets better.” Critical issues were not mentioned in the announcement of the trade war truce, he said.

“China still thinks it can wait out this situation,” Price predicted.

Farmers do not have that luxury, said Kristin Duncanson, who grows soybeans and raises hogs in Mapleton, Minn.

In recent years, China has purchased roughly a third of the U.S. soybean harvest. If the Chinese immediately start back buying U.S. soybeans, it might help some, Duncanson said. But in retaliation to the Trump administration’s punitive tariffs, the Chinese already have committed to purchase soybeans from Brazil.

How much market that leaves for American producers is unclear.

What is clear to farmers like Duncanson and Peterson is that no matter how many soybeans the Chinese buy at this point and no matter how trade negotiations progress in the next three months, making money this growing season will be the exception rather than the rule.

Retailers, which face inventory cost increases for Chinese-manufactured goods, got better news when the U.S. agreed to delay an increase in existing protective tariffs from 10 to 25 percent.

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Target Corp., which imports a large percentage of its inventory from China, declined to comment on the temporary trade war truce. A spokeswoman referred the Star Tribune to August 2018 comments by CEO Brian Cornell that expressed concern that tariffs “would increase prices on everyday products for American families.”

At the time Cornell added that “a prolonged deterioration in global trade relationships could damage economic growth and vitality in the United States.” But he said Target had a number of financial tools available to remain competitive.

Best Buy, the other major retailer homed in Minnesota, pointed to comments made by CEO Hubert Joly in a Nov. 20 earnings call. Joly estimated that tariffs on $200 billion worth of Chinese imports that took effect in September “touches only about 7 percent or about $2.3 billion of our total cost of goods sold.”

The small percentage of inventory, coupled with the relatively low tariff rate of 10 percent, led Joly to predict a minimal impact on his company’s business for the remainder of the fiscal year.

Joly cited the Jan. 1 tariff increase from 10 to 25 percent as a potential issue. But he also expressed optimism that “while the journey may not be linear, the trade negotiations with China will progress.”

For retailers, keeping import tariffs at 10 percent is critical, Price said. At that level, growth in the value of the U.S. dollar in comparison to the Chinese yuan can eat up most of the cost of the levies. If tariffs go to 25 percent, appreciation of the dollar cannot offset cost increases, and consumer price hikes become a serious threat.

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