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American Shipper

U.S. farm products targeted by Chinese tariffs

Farmers across the United States feel they would be the prime target in a trade war between the U.S. and China as tension continues to heat up.

   Farmers across the United States are on the front lines in the developing trade war between the U.S. and China.
   On Monday, China imposed higher tariffs of U.S. exports on 128 products. This was in response to President Donald Trump on March 8 signing off on global tariffs of 25 percent on steel and 10 percent on aluminum under Section 232 of the Trade Expansion Act. The steel and aluminum tariffs kicked into gear on March 23.
   Of the 128 products targeted by China, the U.S. Department of Agriculture (USDA) said 84 were food and agricultural products – including pork, nuts, fruit (dried and fresh), ginseng and wine – and that the tariffs will impact about $2 billion in U.S. food and agricultural exports.
   Then on Tuesday, the U.S. Trade Representative’s (USTR) announced it would impose tariffs on approximately $50 billion worth of Chinese imports and take other actions “in response to China’s policies that coerce American companies into transferring their technology and intellectual property to domestic Chinese enterprises,” prompting China’s Ministry of Commerce to retaliate with a proposal to impose 25 percent tariffs on 106 items imported from the U.S. worth about $50 billion in 2017 on Wednesday.
   In regards to China’s announcement Wednesday, USDA said those proposed tariff increases “will impact approximately $16.5 billion in Chinese agriculture and food imports from the United States.
   Approximately one-third of the products targeted by China – 33 out of 106 tariff codes – are food and agricultural products, the USDA said. They include soybeans, corn and corn products, wheat, sorghum, cotton, beef and beef products, cranberries, orange juice, and tobacco and tobacco products.
   Unlike the Chinese tariffs announced Monday, which went into effect immediately, the Ministry of Commerce did not state when the second group of tariffs would enter into force.
   Peter Friedmann, executive director of the Agriculture Transport Coalition (AgTC), said he expects that in response to the second list being issued, there may be forward ordering and shipping of products as producers seek to get goods to customers before those tariffs actually are imposed.
   “This 301 list is much more extensive, hitting many more China exports, so we can expect retaliation to hit our exports even harder,” the AgTC said.
   American Farm Bureau Federation President Zippy Duvall said Wednesday in a statement that China’s threatened retaliation against the U.S. tariff proposal “is testing both the patience and optimism of families who are facing the worst agricultural economy in 16 years.”
   “This has to stop,” said Duvall. “Growing trade disputes have placed farmers and ranchers in a precarious position. We have bills to pay and debts we must settle, and cannot afford to lose any market, much less one as important as China’s. We urge the United States and China to return to negotiations and produce an agreement that serves the interests of the world’s two largest economies.”
   But on Thursday evening, President Trump said he was raising the stakes.
   “Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers,” he said. “In light of China’s unfair retaliation, I have instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate under Section 301 and, if so, to identify the products upon which to impose such tariffs. I have also instructed the Secretary of Agriculture, with the support of other members of my Cabinet, to use his broad authority to implement a plan to protect our farmers and agricultural interests.”
   U.S. Trade Representative Robert Lighthizer said Trump was “right to ask for additional appropriate action to obtain the elimination of the unfair acts, policies and practices” identified in the Section 301 report, adding that China’s actions “would undoubtedly cause further harm to American workers, farmers and businesses.”

Tariff Beef.
The U.S. Meat Export Federation (USMEF) said it was still hopeful that the Chinese government’s decision to impose an additional 25 percent duty on imports of U.S. pork and pork variety meat could be rescinded quickly. Prior to this week, tariffs on frozen pork and chilled beef stood at 12 percent and 20 percent, respectively.
   China is a leading destination for pork exports, USMEF said. In 2017, the U.S. shipped 495,637 metric tons of pork and pork variety meat to China/Hong Kong valued at $1.08 billion, making it “our second-largest international market by volume and third-largest by value,” according to the USMEF.
   “With U.S. exporters facing tariff and non-tariff barriers in China and other key markets, it is especially important to expand and diversify our export destinations for U.S. red meat,” the federation said. “USMEF is working constantly to identify new and emerging markets in regions such as Central and South America, Southeast Asia and Africa, and to expand our customer base in mainstay markets such as Mexico, Japan, South Korea and Canada.”
   Jim Monroe, communications director for the National Pork Producers Council, said it is still early to say how the higher tariffs will affect the industry, adding that the implications are likely to vary from producer to producer.
   “But I think the biggest thing around this is it creates a lot of uncertainty, and it is not just China,” he said. “We have other really important markets for U.S. pork, like Mexico and Canada. With the NAFTA re-negotiations, there is a lot of uncertainty about that.”
   A little more than 26 percent, or about 31.2 million, of the 120 million hogs harvested in the U.S. last year were exported.
   The uncertainty resulting from the trade dispute “is going to make folks think twice about investment they could be making,” Monroe said. “We’re in an expansion mode in the U.S. pork industry. We’ve got five new plants that have either recently gone online or will soon go online and much of that is driven by the great prospects for exports.
   “U.S. demand for pork is good, but it’s a mature market,” he added, so the industry is looking for growth abroad, where Monroe said the U.S. has an advantage because “we produce the highest quality, the safest and the most affordable pork in the world, and we do it very cost efficiently.”
   Whether or by how much China will reduce its imports because of the higher tariffs that went into effect this week is unclear. Monroe doesn’t believe pork producers would start reducing their herds if China buys less U.S. pork.
   “There is demand for our product, we sell pork to more than 100 countries. I think pork’s going to move. It just depends on what price it’s going to move at,” he said.   

The Golden State.
Karen Ross, secretary of the California Department of Food and Agriculture, said retaliatory tariffs could have a significant negative impact on California’s farmers and ranchers, with the increased tariffs impacting four of the state’s top five agricultural exports to China, including pistachios, almonds, wine, and oranges and orange products.
   These four commodities accounted for $1.34 billion worth of exports to China in 2016, according to Ross. Other commodities targeted include walnuts, table grapes, strawberries, raisins, lemons and dried plums. All told, the state’s farmers and ranchers shipped $2 billion worth of products to China, which she said is “an important and growing market for California’s agricultural exports.”
   “The retaliatory tariffs increase the costs of U.S. exports, making our products less affordable for Chinese consumers,” she explained.
   For example, the tariff on pistachios is being raised from 5 percent to 20 percent, on almonds from 10 percent to 25 percent, and on citrus from 11 percent to 26 percent.
   “While other countries doing business in China will continue to enjoy lower tariffs, our farmers and ranchers will likely experience greater competition and a slowdown in sales,” Ross wrote in a blog post. “The tariffs will also have a chilling effect on the substantial growth that California’s agricultural exports – including wine – have experienced in China throughout the past decade. Future trade opportunities could be lost as it becomes more difficult for our producers to secure and grow new Chinese markets.”
   Almonds are the most valuable commodity exported from the state, and the California Almond Board said producers shipped about 151 million pounds of almonds to China in the crop year that ended on July 31, 2017, making it the third largest export market after Spain and Italy.
   The tariff proposal also “comes at a very bad time for the wine industry, which is trying to penetrate the Chinese market,” said Jock O’Connell, international trade advisor at Beacon Economics and an expert on California trade and economics.
   “This will increase the total tariff and tax paid on a bottle of U.S. wine imported into China from 48.2 percent to 67.7 percent,” said the Wine Institute, an organization that promotes California wines. “Chilean, Australian and New Zealand wines enter China tariff-free and only pay the 27 percent combined tax rate. Australian wines will be tariff free starting in 2019.”
   French wines dominate the high-end market in France, said O’Connell, and California winemakers are trying to get into the middle market, but they already face stiff competition because of the tariff advantage that Australian, Chilean and New Zealand vintners have.
   “China is an important and growing market for California wines,” said Robert P. Koch, the president and CEO of Wine Institute. “We are disappointed by the implementation of these additional tariffs. Over the last decade, we have made tremendous progress in developing a loyal and enthusiastic base of Chinese consumers who enjoy California wines and appreciate their quality. These tariffs put our products at a price disadvantage and we urge swift resolution of this issue before long-term disruptions are felt. We will continue to pursue our marketing initiatives in China with confidence that the popularity of California wines will continue to grow.”

A Critical Market. According to the Wine Institute, China is one of the fastest growing wine markets in the world and will soon be second only to the U.S. in value. U.S. wine exports to China and Hong Kong were up 10 percent in 2017 to $197 million. The value of U.S./California wine exports to China alone have increased 450 percent in the past decade.
   The USMEF expressed similar frustration about potential disruption to a promising market if China follows through with threatened retaliatory tariffs against U.S. beef exports.
   USMEF Director of Communications Joe Schuele noted that China was closed to U.S. beef exporters for 13 years because of the bovine spongiform encephalopathy – also known as “mad cow” disease – scare and only reopened in June 2017. Since they restarted, beef exports to China are low, but have been growing, totaling 3,839 metric tons valued at $38.5 million through the seven-month period running through the end of January.
   “Over the past nine months, interest in U.S. beef has steadily gained momentum in China and our customer base has grown,” the federation said. “But if an additional import tariff is imposed on U.S. beef, these constructive business relationships, and opportunities for further growth, will be put at risk.”
   And the stakes could be even higher for the U.S. soybean industry, as China has said it may impose a 25 percent tariff on soybeans. Currently there is no tariff on soybeans.
   “When you look at a field of soybeans in the United States you can assume that one third of what you’re looking at will go to China,” said Mike Steenhoek, executive director of the Soy Transportation Coalition. “Over half of what we produce is exported, one-third of our production goes to China. It’s an enormous customer for us.”
   Steenhoek said the U.S. exported over 35 million metric tons of soybeans worth $14 billion worth to China last year, the largest export customer. The second largest market is Mexico, which imported about 3 million metric tons ($1.5 billion) from the U.S. A total of 54 million metric tons of soybeans were exported last year.
   “When you look at the disparity between the number one customer and number two customer, you only have marginal ability to really offset that,” he said.
   According to Steenhoek, no one seriously believes there will be wholesale abandonment of U.S. soybeans by the Chinese even if the tariffs proceed.
   “Because the Chinese demand is so enormous that the rest of the soybean producing world doesn’t have the capacity to satisfy all of that if you remove the US from the equation,” he explained. “There’s just not this reservoir to be able to supply all its needs.”
   But some of the buyers in China could source more from Brazil or Argentina.
   “All that is required is for China to shift a portion of those purchases away from the United States and to Brazil primarily to all of a sudden be the difference between a farmer being in the black versus being in the red,” he said.
   About 60 percent of soybean exports move through ports along the U.S. Gulf and 25 percent through ports in the Pacific Northwest. In addition, 90 percent of all soybean exports move in bulkers, and about 10 percent in containers, but Steenhoek believes the share moving in containers to China may be smaller.
   Wheat farmers have also voiced similar concerns.
   “People may not know that China imported more than 61 million bushels of U.S. wheat in marketing year 2016/17, making it our fourth largest buyer in the world,” said U.S. Wheat Associates W Chairman Mike Miller, a wheat farmer from Ritzville, Wash. “Farmers across the country have invested a lot of money and time over the years to develop a Chinese market that has great potential to buy even more American wheat. Now that effort is in jeopardy at a time when big global supplies have already pushed farm gate wheat prices down to unsustainable levels.”
   “Adding a 25 percent tariff on exports to China for U.S. wheat is the last thing we need during some of the worst economic times in farm country,” added Jimmie Musick, president of the National Association of Wheat Growers, a wheat farmer from Sentinel, Okla. “In a trade war, agriculture is always the first target. The administration can support rural Americans by working with Chinese officials to avoid these damaging tariffs.”
   One export commodity that does move primarily in containers is cotton. The National Cotton Council of America said that in the current 2017 crop year, China is the second largest export market with purchases of approximately 2.5 million bales of U.S. cotton.
   “I cannot overstate the importance of China’s market to U.S. cotton farmers and the importance of U.S. cotton in meeting the needs of China’s textile industry,” said Ron Craft, the council’s chairman. “The cotton industries of the United States and China enjoy a healthy, mutually beneficial relationship.”
   Cotton could potentially be hit with an in-quota tariff that would increase from 1 percent to 26 percent.
   The Port of Oakland, which saw agriculture exports increase 42.7 percent since 2013 to reach 375,727 TEUs last year, is one of several U.S. container ports in which higher Chinese tariffs are likely to have negative consequences.
   Japan, China and South Korea were the three largest export destinations for Oakland’s agriculture exports in 2017, and the port had expressed concern even last month before the Chinese actions were announced that “export growth could stall if foreign governments tax American goods in retaliation for Trump Administration tariffs.”
   The port is in the midst of building a 283,000-square-foot refrigerated distribution center which could accommodate 30,000 TEUs annually. Much of that is expected to be exports of chilled and frozen meat products arriving at the port in railcars.
   Mike Zampa, a spokesman for the Port of Oakland, also noted that about 97 percent of the wine exported from the U.S. to to China moves through the port.
   However, Zampa said it was still too soon to know if the higher tariffs have had an immediate impact on bookings at the port.
   Agriculture exports to China have become all the more important in the westbound transpacific container trades because of the decision by China to ban scrap paper, plastic and textiles, all of which were previously leading U.S. exports.
   O’Connell noted that on April 2, one of the 128 commodities hit with Chinese tariffs was scrap aluminum, now subject to a 25 percent tariff.
   According to the website of recycling industry publication Resource Recycling, a recent analysis shows 820,000 metric tons of aluminum scrap was shipped to China last year.
   O’Connell said 412,000 metric tons of those exports went through West Coast ports, substantially more than the 111,000 metric tons of edible fruits and nuts that were exported through the West Coast ports in 2017.

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