Iowa could be hurt by China economic slowdown

The looming slowdown in China’s enormous economy has Iowa business, farm and state leaders watching closely, concerned the country’s voracious appetite for the state’s products — nearly tripling to about $1 billion over the past five years — could be curbed.

“China has been seen as a growth market for all sorts of products that we make here,” said Chad Hart, an Iowa State University agricultural economist. “It’s not just soybeans. It’s John Deere, it’s Principal Financial. The impact could be much broader, depending on the slowdown.”

China government announced earlier this month it was devaluing its currency to help boost its slumping economy, the second largest in the world.

Iowa’s ability to sell everything from skid loaders to pork and pasta to China and other countries is important to the state economy, say Hart and others. Exports played a key role in helping the state recover from one of the worst recessions in history.

For example, Iowa’s total exports nearly doubled to $15.1 billion from 2009 to 2014, outpacing U.S. exports, which grew about 50 percent during the same time.

China played a leading role in Iowa’s growth. It’s only the state’s fourth-largest export market — behind Canada, Mexico and Japan — but China is among its fastest-growing.

“Iowa has been a huge beneficiary of trade to Asia and China over the last several years,” said Ernie Goss, an economist at Creighton University in Omaha. “It’s been a big, big benefit.”

China’s total purchases from Iowa have barely slowed down the first half of the year, climbing 38 percent. At the same, the state’s total exports fell 15 percent, with a strong U.S. dollar making Iowa products less competitive.

“China’s slowing economy is the thundercloud on the horizon,” said Joseph Rude, a marketing manager at the Iowa Economic Development Authority, specializing in Asia-Pacific trade promotion.

Goss said agriculture could see the hit first in Iowa. Machinery leads Iowa’s total top exports, but farm products lead sales to China. The country’s ag purchases are about five times larger than 2009, climbing to $358 million in 2014.

China also has become the top buyer of U.S. agricultural products, with spending climbing about 63 percent to $26 billion in 2013 from 2008, a U.S. Department of Agriculture report shows.

About 40 percent of China’s nearly $109 billion in ag imports in 2013 were soybeans and other oilseed products, the USDA report said. That’s good news for Iowa, expected to be the nation’s second-largest soybean producer this year.

China’s reliance on soybeans from the U.S., Brazil and other countries makes Grant Kimberley of the Iowa Soybean Association confident the country’s demand will remain strong.

Kimberley, the group’s market development director, said improving incomes and the standard of living in China have increased consumer demand for pork and other meats. China buys about 65 percent of all the world’s soybean supplies to help feed pigs, other livestock and poultry, he said.

Imports aren’t “increasing quite as fast as they once were, but they’re still projected to increase,” Kimberley said, noting that he expects about China to bump up its soybean purchases by 4 percent this year.

“They’re still making approximately $115 a head profit in their hog industry,” Kimberley said. “No one will quit buying soybeans to feed the hogs with that much profit in the industry.”

Kathy Hill, international trade team leader at the Iowa Economic Development Authority, said one of China’s biggest political challenges is to ensure its massive population has adequate food. “That’s the No. 1 issue in keeping stability within their country,” she said.

Hart, the ISU economist, worries, though, that the slowdown in China’s growth will mean a pullback in demand for pork, beef and poultry. And with it, declining demand for soybeans, soybean meal and dried distillers grains, a corn byproduct from ethanol production that’s used to feed cattle.

“If the economy is slowing down, I would think you’d see a slowdown in meat demand and a slowdown in the livestock industry,” he said.

And slower growth in China could be here for some time, with smaller population growth. “It’s a slower growth path, but at least it’s growing,” he said.

Hart said he expects other areas of the Iowa and U.S. economies are strong enough to help offset a decline in exports.

Goss agreed. “The amazing part to me is that the Iowa economy has really held up against avian influenza, it’s held up against the weaker ethanol, it’s held up against weaker exports,” he said. “But growth certainly has to slow down in Iowa and in almost all the states in the Midwest.”