The trade war between the U.S. and China is on escalation with no end in sight. What initiated as a war of words on Twitter has over the last few weeks scaled up, with the countries resorting to imposing massive trade tariffs against each other on different commodities. President Trump had announced an increased tariff of 25% on $50 billion worth of Chinese imports, which prompted China to retaliate with tariffs up to 25% on $3 billion worth of food imports from the U.S.
The Chinese state-owned news outlet Xinhua ran a stinging article on Monday rebuking President Trump’s tariffs calling it an “unwise move.” It went on to say that this move would ultimately end up harming the national interests of the U.S. and that it “only risks making America economically impaired.”
Though the U.S. trade deficit with China is high, exports have been increasing at a higher rate than imports in the last few years. The U.S.-China Economic and Security Review Commission reports that U.S. exports to China increased by 15% year-on-year which is nearly twice of the 8.3% import year-on-year growth rate.
China has always been a lynchpin market for U.S. agricultural products, with it being the third largest market for U.S. exports in 2016. On China’s recently released list of 128 products with increased tariffs are fresh and dried fruits, almonds, pistachios, and wine which would see an additional 15% tariff and eight other items including frozen pork with an added 25% tariff.
But a comprehensive study of U.S. exports to China would show that China has deliberately kept out the biggest export commodities from the trade tensions – like soybeans and coarse grains. Analysts believe that Beijing is looking to toe the line and not indulge in an all-out trade war, an event which would end up scalding both the countries.
Nonetheless, the tariffs imposed on pork and its associated products is still something to be concerned about. China is the third largest consumer of U.S. pork, accounting for $1.1 billion in pork products last year, according to the U.S. Meat Export Federation. A 25% tariff would put a severe dent in the margins of U.S. pork export companies, which is worrying.
It is interesting to note the demographics and the voter base of the states that have the highest pork and related products produced in the U.S. It can be seen that of the top 10 states, an overwhelming eight states including Iowa have gone to the Republicans. Statistics drawn from NPPC show that the U.S. pork industry supports about 547,000 jobs, and adds $39 billion to the national GDP.
“We sell a lot of pork to China, so higher tariffs on our exports going there will harm our producers and undermine the rural economy,” said NPPC President Jim Heimerl, a pork producer from Johnstown, Ohio. “No one wins in these tit-for-tat trade disputes, least of all the farmers and the consumers.”
Pork exports alone support about 110,000 jobs in the U.S. which would be in the direct line of fire with China imposing trade tariffs. And since most of these jobs are in Republican states, it could mean additional pressure on the incumbent government.
That being said, the situation could ironically end up being counterproductive to the Chinese as the biggest U.S. pork producer – Smithfield Foods – is Chinese-owned. Till now, Beijing has shown no inclination on giving respite to Smithfield Foods and similar Chinese-owned U.S. based export companies. The tariffs could not have come at a worse time for Smithfield Foods, which is currently in the process of scaling up exports to China.
The fallout could be dreadful. When the price of U.S. farm products increases in China, the local population would be forced to look at other countries for their supplies. For example, Spain could replace the U.S. as China’s largest pork supplier and Chile could take their place for wine.
The U.S.-China bilateral trade investment ties are extremely vital to both the countries and protectionist policies would only end up tilting the scales, sabotaging not just bilateral trade but also global economic balance. Trade tensions have always had an unsightly history, and this tussle is no different – as this trade war begins to take shape, the outcome could end up being a pyrrhic victory at best, or a downright disaster at worst.
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