Chinese tariffs on beef & pork may affect U.S. markets–but how much?
In early March, President Donald Trump signed an executive order to impose a 10 percent tariff on imported aluminum and a 25 percent tariff on imported steel. More recently, Trump has specifically targeted China for intellectual property theft, and on April 2, the Trump administration announced a 25 percent tariff on a list of 1,300 Chinese exports valued at $50 billion annually.
To explain his position, Trump tweeted, “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 billion a year, with intellectual property theft of another $300 billion. We cannot let this continue! When you’re already $500 billion DOWN, you can’t lose!”
In turn, China responded to Trump’s move on April 4 with 25 percent tariffs on a list of 106 products including airplanes, cars, soybeans, wheat, pork and beef. No date was set for when these levees might be implemented; instead, the Chinese implied that it was all contingent on the results of negotiations with the U.S.
“If someone wants a trade war, we will fight to the end. If someone wants to talk, our door is open,” said Wang Shouwen, Chinese vice minister of commerce, to reporters.
Naturally, the agricultural industry is worried, particularly since 57 percent of U.S. soybeans are exported to China. What’s more, the majority of Trump’s voters were rural Americans, and with trade wars threatening their industries, many are speculating that loyalties may waiver as agriculture gets put in the crosshairs of an ongoing trade war.
However, White House chief economic advisor Larry Kudlow told reporters, “I don’t think people should overreact right now. This is a negotiation using all the tools.”
Cattle ranchers should take note that China’s list of 106 items includes whole and half-head fresh and cold beef, fresh and cold beef with bones, fresh and cold boneless beef, frozen beef with bones, frozen boneless beef, frozen boneless meat and other frozen beef chops.
“It is unsettling to see American-produced beef listed as a target for retaliation,” said Kent Bacus, National Cattlemen’s Beef Association director of international trade and market access. “Sadly, we are not surprised, as this is an inevitable outcome of any trade war. This is a battle between two governments, and the unfortunate casualties will be America’s cattlemen and women and our consumers in China. The Trump Administration has until the end of May to resolve this issue. We believe in trade enforcement, but endless retaliation is not a good path forward for either side.”
Just nine months ago, the U.S. regained access to the Chinese market after a 13-year absence, and Dan Halstrom, U.S. Meat Export Federation (USMEF) chief executive, worries the U.S. beef industry will lose the steadily gaining momentum in the Chinese market
“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,” said Halstrom. “USMEF is hopeful that this trade dispute can be resolved without China introducing additional obstacles for U.S. beef.”
According to USMEF, for the second half of 2017, following the market reopening, U.S. beef exports to China totaled 3,020 metric tons valued at $31 million. In January 2018, exports reached the highest monthly volume to date at 819 metric tons, valued at $7.5 million.
“China is a promising market for U.S. beef, and, since the June 2017 reopening, the U.S. industry has made an exceptional effort to provide customers with high-quality beef at an affordable price. This is not an easy task, due to our 13-year absence from the market and China’s beef import requirements,” Halstrom said.
These requirements include restrictions on beef that can be sold to China. Beef sold to China must have no growth promotants or beta agonists. Traceability from calf to processing has also limited what beef can be sold to China, explained Richard Fritz, founding partner of Global AgriTrends in Denver, Colo., and former USMEF vice president of trade development.
“With the restrictions already placed on U.S. beef going to China, this is a small export market in terms of volume and value to the U.S. and represents less than 1 percent of the Chinese beef market,” said Fritz. “An additional tariff would more than likely significantly hamper the small amount of product that is going to China currently.”
The question of whether or not these tariffs will actually be imposed is still up in the air, but Fritz said if it does, the ripple effect on the U.S. beef market would be marginal; however, the tariffs on pork could significantly alter the U.S. domestic beef market.
“First, we must remember that we could still send beef to Hong Kong as they are exempt from the Chinese restrictions and wouldn’t be imposed with the duty,” he said. “The one thing I am concerned about is the large volume of protein on the market that will be seeking a home. U.S. pork is a much bigger export market to China than beef, and with a 25 percent duty on U.S. pork, combined with the increased production of pork, beef and poultry in the U.S., I anticipate the ripple effect on beef being higher due to the large amount of protein available on the domestic market.”
Fritz said beef and pork were “easy” additions to the list as they don’t purchase a large volume of beef, and pork prices were already depressed in China; however, he said the tariff on soybeans would be a difficult one for the Chinese to endure for a long period of time.
“Politically and strategically, I think China included soybeans on the list to hurt the U.S., but unlike beef and pork, there really aren’t many places to source beans in the volumes that the Chinese demand. Realistically, how long can they get along before they need U.S. soybeans?”
According to Rabobank, if the Chinese impose a 25 percent duty on soybeans, “There aren’t enough soybeans in the world to meet China’s demand without U.S. supplies. China was forecast to import 97 million tons of soybeans in 2017-18 (without duties), but with duties, that number will probably not be achieved.”
Wheat farmers in the U.S. are concerned about the implications for their industry. In a joint statement from U.S. Wheat Associates and National Association of Wheat Growers, they expressed their dismay. “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 USW 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.”
“America’s wheat farmers are experiencing several hardships and 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,” said NAWG President Jimmie Musick a wheat farmer from Sentinel, Okla. “Continued drought, low prices and trade uncertainty adds pressure to passing a Farm Bill on time as well as creating uncertainty for producers and lenders. 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.”
While a trade war seems likely with both sides publicly sparring, it is too early to tell how agriculture will be impacted.
“I think there is more of a psychological effect on this,” said Fritz. “We’ll likely see that reflected in the markets early on as we wait to see if this will really even happen.”
Fritz added that these trade retaliations undoubtedly go back to intellectual property disputes and the way China distorts trade agreements on the U.S. and other trade partners.
According to Gwynn Guilford for quartz.com, “‘Trump’s proposal is based on an investigation he commissioned in August 2017, which found that Chinese industrial policies are designed to help its native companies acquire the technology of U.S. firms and give Chinese companies a leg up over American competitors,’ said Peter Navarro, director of the White House National Trade Council, in a press briefing. Of particular concern are China’s longstanding habits of compelling foreign companies to share technology and form joint-ventures with local partners as a condition of investing in China.”
“I’m not sure if this public back and forth is helpful,” added Fritz. “Chinese President Xi Jinping will want to save face; last month he appointed a new financial group in restructuring the government, so now might not have been the best time to go after China as publicly as we have.”
Forbes reports that China accounted for 10 percent of U.S. exports and 22 percent of U.S. imports, ranking third and first among all nations. In a recent article, Forbes writer Ken Roberts explains, “These two economies are highly intertwined. Does it make sense to accelerate China’s ascension into the global economy as a free and fair trader? Absolutely. But the real issue is intellectual property protection. While Trump has certainly gotten the attention of Xi, the problem and solution are not aligned.”