A monthly column written exclusively for Beef Central by US market commentator, Steve Kay, publisher of US Cattle Buyers Weekly
BACK in November 2016, the vast majority of America’s growers and livestock producers cast their vote for Donald Trump, especially as he promised to remove several onerous regulations introduced by the Obama Administration.
Now those same voters are likely regretting their choice, as President Trump’s trade tantrums have reached a terrifying new level.
That’s not my opinion but those of most of US agriculture’s leaders, who represent such diverse sectors as corn, fresh fruits and nuts, meat and tobacco.
None use the word ‘terrifying’ in public statements about President Trump’s tariff dispute with China. But read between their lines and you know what they are thinking. That’s because the tariffs that China says it will impose on up to 140 US agricultural products exported to China could cost US agriculture tens of billions of dollars per year.
Then there’s the possibility that Trump will tear up the North American Free Trade Agreement (NAFTA), which is the greatest trade success story of the past 20 years. In particular, it has made North America a truly single market for cattle and beef, hogs and pork, to the benefit of US, Canadian and Mexican livestock producers, as well as many allied industries.
Trade war alarms US meat industry
Agricultural leaders last month called for restraint in what some of them called a trade “war.” It is unsettling to see American-produced beef listed as a target for retaliation, the National Cattlemens Beef Association’s Kent Bacus said. Sadly, NCBA is not surprised, as this is an inevitable outcome of any trade war. This is a battle between two governments, and the unfortunate casualties will be America’s cattlemen and women and consumers in China, he said.
At the same time, the North American Meat Institute (which represents the meat industry) said it was extremely alarmed about the rapidly escalating trade tensions.
The industry urges both governments to engage expeditiously in a constructive dialogue aimed at resolving issues before additional tariffs take effect, said president and CEO Barry Carpenter. There are no winners in trade disputes, and the stakes are particularly high in the current situation. American agriculture and its meat sector in particular stand to suffer each day this tension continues, he says.
Such comments came as China imposed a 25pc tariff on imported US pork on April 2. It also implemented that day a 15pc tariff on dozens of fresh and dried fruits, nuts and other US commodities. The tariffs affect 128 items. All together, the value of those exports to China in 2017 was US $977 million.
China next produced a long list of products on which it proposes to impose a 25pc tariff. The products include beef, soybeans, wheat, corn, cotton, sorghum and tobacco. China last year bought 32 million tonnes of US soybeans worth US $14 billion and billions of dollars of US corn.
China is a key market for US pork and especially for pork variety meat. In 2017, the US exported 309,000t of pork and pork variety meat to China valued at US $663m. So its decision to slap a 25pc tariff on US pork could hurt exports.
But the impact might not be as severe as many think. Moreover, the impact on the entire US pork complex might be slight, as exports to China represent only 2.5pc of US pork production. Besides, most exports occur between the fall (northern hemisphere autumn) and the early part of the year. So any impact of the tariffs will likely not start until then.
None of this, though, prevented some analysts in early April of talking about a “Pork Armageddon” and for trade groups to express considerable concern about China’s decision.
Impact on US beef trade?
A 25pc tariff on US beef will hurt efforts by US exporters to grow meaningfully a small but profitable trade that began last June. Following the market reopening, US beef exports to China the rest of the year totaled 3020t valued at US$31m. But in January, exports reached their highest monthly volume to date at 819t valued at $$7.5m.
This growth is now likely to be challenged, depending on when and if China imposes its tariff. But exports to China last year represented only 0.3pc of total US beef exports by volume. So a tariff will have no impact on wholesale beef or grainfed cattle prices.
Nevertheless, US industry leaders lamented the proposed tariff. China is a promising market for US beef, and since the June 2017 reopening, the US industry has made an exceptional effort to provide customers with high-quality beef at an affordable price, says US Meat Export Federation president and CEO Dan Halstrom.
This is not an easy task due to the US’s 13-year absence from the market and China’s beef import requirements. Over the past nine months, interest in US beef has steadily gained momentum in China and the customer base has grown. But if an additional import tariff is imposed on US beef, these constructive business relationships and opportunities for further growth will be put at risk, he says.
A 25pc tariff would impact US beef exports to China more than pork exports, because beef exports are mostly of high-value cuts. Conversely, nearly 60pc of all US pork exports to China in 2017 were of lower-priced variety meats, with pork feet by far the largest single item.
They accounted for 41pc of all variety meat exports and sold for an average US92c/lb, according to Commerce Department data.
To date, the Trump Administration has promised to protect US farmers and growers. But what form would this protection take?
If it is payments or subsidies, how on earth would they be meted out? The Administration has also dispatched senior officials to China for talks. But many ag leaders are skeptical anything will be quickly resolved. May might be another month of growing alarm at China’s proposed tariffs becoming a reality.