October 1, 2018

Escalating Trade War with China Devastating for Dairy

 |  By: Fran Howard

In the most recent move in the tit-for-tat trade war between China and the United States, China pulled out of proposed trade talks and placed an additional 10% import tariff on a new list of U.S. dairy products, effective Monday, September 24.


“This newest move adds to the number of dairy products already subjected to additional Chinese import tariffs that went into effect July 6, 2018,” notes Bob Yonkers, dairy economist and analyst with the Daily Dairy Report. “The tariffs initiated in July did not include lactose, infant formula, caseins, and other food preparations that include dairy, but all of these products as well as other U.S. products were subjected to tariffs in China’s latest retaliatory round. Combining both lists means that nearly every possible dairy product imported to China from the United States will face additional tariffs.”


The U.S. dairy industry has spent more than a decade developing its export market to China, and U.S. exports to China had been booming. “Less than a year ago, China actually lowered tariffs on imports of several U.S. dairy products—beginning December 1, 2017—to meet its growing demand,” Yonkers notes. “These more recent actions show just how quickly trade relations can deteriorate.”


In 2000, annual U.S. exports to China were valued at $22 million, according to USDA data. Since then, U.S. dairy exports to China have grown to an average of $563 million per year for the five-year period beginning in 2013 and ending in 2017. This year, January through June 2018 exports totaled $305 million, which was well above the 2013-17 five-year average of $271 for the same months. USDA’s latest export figures show that for July 2018, after China first imposed additional tariffs on some U.S. dairy products, exports totaled $35 million, well below the $50 million average set for the July five-year average.


With no end in sight for the ongoing trade battle between the world’s two largest economies, some analysts  say the conflict could reduce global economic growth through 2020. On Monday, Fitch cut its forecasts for 2019 economic growth in China and the world by 0.1 percentage points to 6.1 percent and 3.1 percent, respectively. While that’s not enough to create a slowdown in demand for dairy products, a worsening economic situation globally could be cause for concern, notes Yonkers.


Meanwhile, the Trump Administration has said that the most recently imposed U.S. tariffs on Chinese imports will increase from 10% to 25% on January 1, 2019 if trade negotiations do not yield results favorable to the United States before that date.


While some money was provided to develop export markets in the recent $12 billion aid package to farmers caught in the escalating trade war, it would be difficult to replace the Chinese market, Yonkers says. Over the past five years, from 2013 to 2017, China imported 9.7% of the total value of U.S. dairy product exports, trailing only Mexico (23.6%) and Canada (10.2%), and China’s share was well ahead of Japan’s (5.3%) at number four, Yonkers says.


“It will be difficult to find other markets to take up even some of China’s nearly 10% share of our dairy exports,” he adds. “Plus our dairy export situation is already complicated by the ongoing trade dispute between the Trump Administration and Canada, which accounts for another 10%."