Chinese companies have stopped buying agricultural products from the U.S. in the most recent skirmish in the trade war between the two countries. The move came four days after President Trump said he would institute a 10% tariff on $300 billion in goods from China starting Sept. 1, the Associated Press reported.
China's action means further harm to the U.S. farm economy, according to The Wall Street Journal. Chinese buyers imported $19.5 billion worth of U.S. agricultural products in 2017 and $9.1 billion last year as Chinese tariffs kicked in. China, Canada and Mexico were the three largest export destinations for U.S. farm commodities between 2009 and 2017, The Journal added, citing the U.S. Department of Agriculture.
Wall Street responded with alarm, with the Dow Jones Industrial Average dropping more than 767 points Aug. 5, CNBC reported. Trump sought to allay fears by telling farmers he will provide more aid to the sector next year if necessary. The USDA had announced $16 billion in bailout funds to farmers in May, CNBC noted.
China and the U.S. are accusing one another of breaking recent agreements involving agricultural trade, and this latest tit-for-tat development is threatening to exacerbate an already grim situation in the food sector. China is directly hitting at the U.S. heartland, where Trump is relying on voter support for reelection next year.
For the agricultural industry, it's another tough break in a mounting number of trade troubles. In a statement, American Farm Bureau Federation President Zippy Duvall called China's announcement "a body blow to thousands of farmers and ranchers who are already struggling to get by."
"In the last 18 months alone, farm and ranch families have dealt with plunging commodity prices, awful weather and tariffs higher than we have seen in decades," he said. U.S. agricultural exports to China had already dropped by $1.3 billion for the first six months of this year, which was a big decrease from both 2018 and 2017, Duvall added.
Opposition to tariffs has surfaced from trade and agricultural commodity groups. Tariffs Hurt the Heartland, a Washington, D.C.-based campaign including more than 150 such groups, said in a release that tariffs are a "failing strategy" that uses Americans as "bargaining chips in this trade war." The organization is asking Chinese and U.S. trade representatives to return to the negotiating table to reverse losses for all concerned.
Corn, soybean and wheat farmers are being particularly hard hit, but hog producers, dairies and even cranberry and nut growers are also feeling the pinch, according to The Journal. Whether bailouts are the answer remains to be seen, but it's likely not one many producers prefer. It also doesn't help that a recent Environmental Working Group report found most of $8.4 billion from the 2018 bailout package went to wealthy farmers.
China's latest trade decision probably won't shift unless its government sees willingness from the U.S. side to negotiate and compromise — something not typical of the current administration. Trump's promise to farmers that they won't suffer from the trade war could ring hollow if its negative impacts continue for too long or relief comes too late for farmers facing default or bankruptcy.
Meanwhile, food manufacturers may be able to benefit from lower-priced commodities that would otherwise be destined for export to China. But even that potential upside could disappear if and when producers find other export markets for their goods — such as the European Union.
Consumers could also benefit from lowered food prices, at least in the short term, although U.S. consumers already pay a relatively small percentage of income for food. According to the USDA's Economic Research Service, the Consumer Price Index for retail food dropped by 0.3% between May and June of this year but was up just 0.9% from June 2018 to June 2019.
Uncertainty could be the most challenging aspect as farmers try to figure out what to do for the next few growing seasons. They don't have the luxury of changing plans at the last minute, but must work far ahead and gamble on the profits. The same can be said for CPG companies, as they source commodities and decide which products will appeal to consumers and boost sales.
With the two governments at odds, the trade disagreements seem to be leaving producers, retailers and consumers caught in the middle. It will take more time to reach an acceptable political solution in the trade war between China and the U.S. — but with the 2020 general election still 14 months away, the impetus doesn't seem to be there yet.