Report: Chinese tariffs may not last long, but the negative effects might
A recent Rabobank report asserts China’s position as a longtime importer of U.S. products is threatened by its tariff plans, according to The Packer.
The report came out just prior to China's April 1 move to place a 25% retaliatory duty on U.S. pork products and 15% on certain wines, fruits and nuts. The Asian country took that step after President Trump's announcement in March that he planned to put 25% tariffs on imports of Chinese steel and aluminum.
"Even if retaliatory tariffs are relatively short-lived, they can result in negative consequences that have a more lasting effect," the Rabobank report stated.
Although some U.S. commodities China plans to tax aren't exported in huge amounts to that country — Rabobank reported that China only gets about 4% of U.S. fruit and tree nut exports and about 2% of U.S. vegetable exports, both raw and processed — the concern is over future trade.
U.S. fruit and nut exports to China have seen a compound annual growth rate of about 18% over the past 18 years, but the export growth for the rest of the world during that time was just 7%, the report noted. "China is viewed as a critical growth market for demand expansion," Rabobank stated.
As a result of this trade skirmish between the two countries, U.S. farmers, processors, distributors and retailers are warily eyeing the next move by either side as crop plantings start taking place and contracts hang in the balance.
Soybean farmers are particularly anxious about a possible 25% tariff on their product since China is their largest international market. The crop is a major part of farming economies in many of the states that voted for Trump in 2016. The timing is also bad since they have already ordered seed for this year's plantings.
John Heisdorffer, president of the American Soybean Association, told a House committee April 12 that China imported 1.4 billion bushels of U.S. soybeans last year — which is 62% of total exports and almost a third of the annual U.S. production.
“Retaliation by China against U.S. tariffs would undercut prices received by soybean producers and further hurt the already depressed farm economy,” he said in a release. “Crop prices are down 40% since 2013, and farm income has fallen by 50%. Operating margins are slim, and farmers cannot absorb additional hits to the farm economy."
The U.S. stock market has also felt the strain. Just after China's April 4 announcement that it might institute a tariff, soybean futures fell by 40 cents per bushel, representing a $1.72-billion loss in value for farmers. Heisdorffer called that "real money lost for farmers, and it is entirely preventable."
The U.S. Department of Agriculture may have contingency plans to help bail out struggling farmers. Agriculture Secretary Sonny Perdue said last week that he might be able to tap emergency assistance programs should the need arise. However, there are concerns about whether there's enough funding to cover what could be enormous losses, plus some members of Congress indicated they thought the proposal had more to do with election-year politics than trade.
Besides the potential losses to farmers, both countries have plenty to lose in this ongoing dispute. According to an AP story in Time, China calculates that two-thirds, or about $275.8 billion, of its global trade surplus is with the U.S., while the U.S. trade deficit with China has hit a record $375.2 billion.
Still, a silver lining could be glimpsed among all the dark clouds. If the tariff dispute isn't settled soon, Rabobank's report noted that American consumers could see a short-term gain in the form of at least temporarily lower prices if the marketplace is forced to absorb food and beverage products that would otherwise be exported to China.