The Impact of the 2018 Trade Disruptions on the Iowa Economy

In this analysis, we use historical trade patterns, revenue linkages, and recent futures market price changes to discern the 2018 tariffs' near-term impacts on the state of Iowa. We use two distinct modeling techniques, and in each technique we make two distinct assumptions. First, we use partial-equilibrium modeling approaches that do not directly consider linkages among the markets and industries across the state of Iowa. In these approaches, two assumptions about price changes are invoked-either the price changes are based upon supply and demand elasticities or the price changes are based upon observations in the futures market. The partial equilibrium techniques look specifically at the corn, soybean, ethanol, and hog markets along with labor and government revenue impacts from changes in these markets. The second technique is a general equilibrium model that examines the trade disruptions across 20 distinct industries in Iowa while taking into account that some industries benefit from tariffs and others do not. In the general equilibrium analysis, we use two scenarios-using price changes estimated from a global model and using observed futures prices-that reflect assumptions about how tariff revenue might return to Iowa. Both modeling techniques and their two sets of assumptions result in four estimates of the trade impacts. The overall impacts across the methodologies are similar. While there is a great deal of uncertainty about the duration of the trade disruptions and the impact these disruptions might have to long-held trade equilibria, the main results of the study are as follows. Overall losses in Iowa's Gross State Product are calculated to be $1 to $2 billion (off of a Gross State Product of $190 billion). Overall losses in Iowa's Gross State Product are calculated to be $1 to $2 billion (off of a Gross State Product of $190 billion). Overall losses to Iowa's Soybean industry of $159 to $891 million, with an average revenue loss across all models of $545 million (Iowa soybeans are a $5.2 billion industry). Overall losses to Iowa's Corn industry of $90 to $579 million, with an average revenue loss across all models of $333 million (Iowa corn is an $8.5 billion industry). Overall losses to Iowa's Pork/Hog industry of $558 to $955 million, with an average revenue loss across all models of $776 million (the Iowa pork/hog industry is a $7.1 billion industry). A 2% drop in Ethanol prices resulting in approximately $105 million in lost revenues to Iowa ethanol producers. Revenue losses in these industries translate into additional lost labor income across the state. Labor income declines from the impacts to the corn, soybean, and hog industries range from $366 to $484 million without federal offsets and $245 to $364 million with federal offsets. Iowa tax revenue losses (personal income and sales taxes) range from $111 to $146 million. Federal offsets would reduce tax losses to $75 to $110 million.