Chinese tariffs hit US food exporters, leaving other nations to make hay while the sun shines

At the start of the summer, a group of officials from Maine wrote to US President Donald Trump, urging financial support for the state’s iconic lobster industry.

“One of the first victims of retaliation imposed by China after the initial round of tariffs was lobster shipped from Maine,” wrote Maine Senators Angus King and Susan Collins, along with state Representatives Chellie Pingree and Jared Golden.

China had become the second largest importer of Maine lobster, buying US$128.5 million in the second half of 2017, before increasing purchases by 169 per cent over the first half of 2018.

But then the tariffs hit, and last year, the market died and US lobster exports to China fell by 80 per cent in 2018.

China has not lost its taste for the delicacy: over the first half of 2019, Canadian lobster sales to China were almost equivalent to their total for 2018, according to the Associated Press, as the same species of lobster exported from Maine is also found in waters off Nova Scotia and New Brunswick.

On Sunday, things got worse for American lobstermen – along with food producers across numerous industries – when a new raft of Chinese tariffs further jeopardised the market share for American food exporters in the world’s most populous nation.

With frozen Maine lobsters now attracting a tariff of 45 per cent, after an increase of 10 per cent, Canadian fishermen can look forward to more and bigger paydays ahead, leaving Maine’s political leaders to continue pondering “the blow of Chinese tariffs on a hallmark American industry that has done nothing to deserve the punishment that it is presently forced to bear”.

Soybeans, wheat and pork were also on the new tariff list, and the US’ loss will be other nations’ gain. With 1.4 billion mouths to feed, Chinese buyers are sourcing their food from nations with lower-tariff access to Chinese ports, a trend that will deepen as tariffs on the US rise.

According to Darin Friedrichs, a soybean analyst working for INTL FCStone in Shanghai, “yellow soybeans are the only ones that matter”, when it comes to US sales to China. The tariff on yellow beans has risen to 33 per cent, compared to just 3 per cent from Brazil and Argentina, China’s other major suppliers.

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The blow of Chinese tariffs on a hallmark American industry that has done nothing to deserve the punishment that it is presently forced to bear Maine’s political leaders

Unsurprisingly,US soybean farmers have fairly negative views on the trade war, which has allowed Brazilian rivals to grow their market share in China to 77 per cent over the first nine months of the 2018/19 market year, while their share has fallen to just 10 per cent, according to the US Department of Agriculture (USDA).

A survey of 400 US farmers released on Tuesday found that 71 per cent are not expecting a trade war resolution soon. The survey, conducted by Purdue University in Indiana, also found that 71 per cent of farmers think that government subsidies have helped offset the effects of tariffs, while 58 per cent expect more help in 2020.

The subsidies may well be needed as a 30 per cent tariff differential on beans from Brazil and Argentina will not be attractive to Chinese buyers, who were touring Argentinian facilities in August, looking for cheaper substitutes for US exports and competition for those from Brazil.

The situation with Argentina is complex, but the country’s traders are hoping that political machinations do not stop it from becoming a rival to Brazil in the US’ absence having returned with a bumper crop this year after drought destroyed the nation’s soybean crop in 2018.

“The Argentinian market in general is benefiting from the prices China is paying, or at least from the loss of ability for China to go to the US,” said Rogier Keviet, a soybean trader at Agree Market in Buenos Aires.

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The Argentinian market in general is benefiting from the prices China is paying, or at least from the loss of ability for China to go to the US,Rogier Keviet

However, its ability to plug the gap has been damaged by a plunging peso, which lost 27 per cent against the US dollar the day after pro-business President Mauricio Macri lost a primary to left-wing opponent Alberto Fernandez in August.

“When you have a currency devaluation of 27 per cent in one day, the normal reaction of the farmer is to sit on the beans and wait for more certainty. Over the past year, physical soybeans have been the best savings a farmer could have. It always retains the value, that is the best thing to do,” said Keviet.

American wheat farmers, meanwhile, have also been losing out to their Canadian rivals. In August, “Canada’s share of total Chinese imports of wheat has rocketed above 60 per cent in market year 2018/19, up from 32 per cent on 2017/18, as US wheat exports to China have plunged,” the USDA wrote in a report last week.

US wheat flours, grains, starches and seeds are now subject to a range of higher tariffs of up to 90 per cent, while tariffs on US frozen pork have risen to 72 per cent at a time when China is desperate for imports.

Even with tariffs at 62 per cent, the National Pork Producers’ Council complained that “America’s pig farmers and their families are patriots who are demonstrating enormous commitment to the greater good of our country as they shoulder a disproportionate share of trade retaliation against the US”.

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That was before an African swine fever outbreak threatened to decimate 50 per cent of China’s pig population by the end of 2019, according to Rabobank, increasing the need for imports of the popular meat.

The latest USDA data, for the week ending August 15, showed that far from taking advantage, US pork exports to China are declining, despite desperation in Beijing to ensure prices do not spike further. That week, US farmers exported just 6,900 metric tonnes of pork to China, compared to 19,484 metric tonnes over the same week a year earlier. Instead, the market is going to European rivals, particularly Spain and Germany, as well as growing agricultural power Brazil.

And while US goods have been getting more expensive for Chinese importers, many products from the rest of the world have become cheaper due to lower tariffs.

In a June report, Chad Bown of the Peterson Institute of International Economics, found that since the beginning of 2018, China has increased tariffs on US exports to an average 20.7 per cent.

“But also striking for American farmers, companies, and workers is that China has reduced tariffs on competing products imported from everyone else to an average of only 6.7 per cent,” Bown said, noting that at the beginning of last year, products from the US and other exporting nations were both subject to an average tariff of just 8 per cent.

Dated on: 9/5/2019
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