Hog farmers are headed for a money-losing year and a major factor will be the drying up of $1 billion a year in exports to China, says Purdue economist Chris Hurt. But Chinese consumers will feel little pain from the 25 percent tariff on U.S. pork because the EU and Canada are alternative suppliers.
China acted sooner than expected with its weekend announcement of $3 billion of counter-measures on U.S. goods in response to President Trump’s tariffs on imported steel and aluminum. Among agricultural products, Beijing slapped a 25 percent tariff on pork and a 15 percent tariff on ethanol, apples and almonds. China is the largest customer in the world for U.S. farm exports, responsible for $1 in every $6 of ag exports, with soybeans being the biggest money-earner, worth $14 billion annually. The Chinese government has not said if it will target soybeans in a dispute over U.S. intellectual property.
Without going into detail, Agriculture Secretary Sonny Perdue said the “administration stands ready to defend agricultural producers who may be harmed. As we take a stronger approach to the way we handle trade as a nation, we will use all of our authorities to ensure that we protect and preserve our agricultural interests.”
For pork and ethanol, China is the third-largest foreign market. For apples, China is a top-10 customer. “We recognize that the United States and China are negotiating and we are hopeful that the 25 percent tariffs on U.S. pork will be short lived,” said the National Pork Producers Council, representing hog farmers. The Renewable Fuels Association, a trade group for biofuels, urged the administration to secure removal of the ethanol tariff as quickly as possible. Almost all of U.S. ethanol is made from corn, grown in many of the same states where hogs are raised.
“For the Chinese, tariffs on U.S. pork appear to be a good strategic move,” said Hurt at the farmdoc Daily blog. The tariffs will be quickly noticed in states that voted for Trump for president, such as Iowa, the No. 1 hog-producing state with 30 percent of the U.S. herd. “This gives a potential political victory to China.” U.S. pork accounted for 1 percent of Chinese pork consumption in 2017 and can be quickly replaced.
For U.S. hog farmers, the impact could be harsh. A quarter of U.S. pork is exported annually. China bought 9 percent of the exports, equal to 2 percent of all U.S. pork production. Hurt estimated that a 2 percent decline in demand would reduce prices by $6 per hog. The impact is likely to be smaller, he said, because lower prices will encourage Americans to eat more pork and because U.S. pork would back-fill some of the markets now served by Canada and the EU.
“Clearly, the outlook has weakened!” said Hurt. “The trade hammer has fallen on the U.S. pork industry. Chinese tariffs on U.S. pork along with rising costs have shifted the outlook for 2018 (from modest profitability) to losses expected to be about $12.50 per head.”
Lawmakers from agricultural areas “were noticeably mum” about the tariffs, said Roll Call newspaper, which contacted nearly 20 House and Senate offices. Only one — Democratic Rep. Tim Walz, who is running for governor of Minnesota — “responded as members opted to avoid criticizing Trump amid fears from even his fellow Republicans that his steel and aluminum tariffs have triggered a global trade war.”
Trump threatened withdrawal from NAFTA over the weekend. Canada and Mexico are the No. 2 and No. 3 markets for U.S. ag exports, which now enjoy duty-free access to the North American nations. “Without (NAFTA) trading partners, we would all be left with an over-supply of many commodities & the prices farmers earn for their good would fall,” tweeted the National Farmers Union.
China, Canada and Mexico purchase 40 percent of U.S. farm exports.
U.S. soybean exports to China could plunge by more than 70 percent if China levied tariffs of 30 on them, said Purdue economists Wally Tyner and Farzad Taheripour. Farmers would reduce U.S. production by nearly one-fifth in response to lower market prices, they said. China is the biggest soybean importer in the world; two-thirds of U.S. soybean exports go to China.
“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,” said U.S. Meat Export Federation, which said Chinese tariffs “will have an immediate impact on U.S. producers and exporters. The trade group said it is looking for new markets in developing nations and to expand sales to leading customers Mexico, Japan, South Korea and Canada.