January 7, 2019

Apples, cherries getting hit hard by retaliatory tariffs

A Dec. 31 report from the Congressional Research Service outlined the impact of retaliatory trade tariffs on U.S. agricultural products. Apples and cherries are among the commodities hardest hit, the report indicated.

Called “Profiles and Effects of Retaliatory Tariffs on U.S. Agricultural Exports,” the report notes that many countries have imposed tariffs on U.S. agricultural products to retaliate against actions the Trump administration took in spring 2018 to protect U.S. steel and aluminum producers and in response to Chinese intellectual property rights policies.

Countries have imposed tariffs on U.S. agricultural products to retaliate against actions the Trump Administration took in spring 2018 to protect U.S. steel and aluminum producers and in response to Chinese intellectual property rights and technology policies. Since then, more than 800 U.S. food and agricultural products have been subject to retaliatory tariffs from China, the European Union (EU), Turkey, Canada, and Mexico.

Impact on apple exports noted

U.S. apple exports to Mexico and China are now subject to additional retaliatory tariffs of 20 percent and 40 percent, respectively, raising the total tariff rates to 20 percent and 50, respectively. The two countries accounted for about 30 percent of the $969 million of total U.S. apple exports in 2017.

Mexico was the leading export market by value for U.S. fresh apples, importing $275 million in 2017, or 28 percent of total U.S. apple exports that year. Under NAFTA, U.S. apples were not subject to import tariffs in Mexico. China opened its market to U.S. apples in 2015, and the U.S. apple industry considers it to be a potential growth market. China imported about $18 million worth of U.S. apples in 2017 when the tariff rate was 10 percent.

India ranked third as a destination for U.S. apple exports in 2017, purchasing $97 million of U.S. apples, or 10 percent of total exports. The Indian government proposes to apply a 30 percent retaliatory tariff on imports of U.S. apples on Jan. 31, 2019.

Cherries part of retaliation targets

China has imposed a retaliatory tariff of 40 percent on U.S. cherries, raising the total tariff rate to 50 percent. Demand for cherries has increased in China in recent years, and the United States has been a key source for filling that demand.

U.S. producers exported $123 million worth of cherries to China in 2017 — an increase of 68 percent over 2016 exports — accounting for 19 percent of total U.S. cherry exports that year. The steep retaliatory tariff may spur Chinese importers to look for alternative suppliers.

The value of U.S. cherry exports contracted by 19 percent in FY2018 from the prior year due in part to China’s retaliatory tariff, among other factor

U.S. exports of all agriculture products to the retaliating countries totaled $26.9 billion in 2017, according to USDA export data. The choice of agricultural and food products for retaliatory tariffs likely reflects the large volume of agricultural trade involved and that many of these products can be sourced from non-U.S. trading partners. Such tariff hikes threaten to reduce U.S.  agricultural exports.

China, which is subject to both the U.S. Section 232 steel and aluminum tariffs and separate Section 301 tariffs aimed as punishment for its handling of U.S. intellectual property rights, has placed retaliatory tariffs on the largest number and highest value of U.S. agricultural and food products. More than 800 products– including soybeans, pork, dairy products, fruits and nuts, seafood and processed products – accounting for almost all U.S. agricultural and food exports to China in value terms in 2017 (the last full year without retaliatory tariffs) are now subject to additional tariffs of 5 percent, 10 percent, 15 percent, 25 percent or a combination of those amounts.

U.S. exports to China of those products that are subject to retaliatory tariffs were worth about $20.6 billion in 2017. China has fallen from the leading export market for U.S. agricultural products in FY2017 to the third-leading export market in FY2018 due to the retaliatory tariffs, according to the U.S. Department of Agriculture (USDA).

USDA forecasts that China will fall to the fifth-leading market for those products in FY2019. Canada and Mexico are each targeting about 20 U.S. food and agricultural products, which accounted for approximately $2.6 billion and $2.5 billion in exports to each respective country in 2017. The EU and Turkey have each put retaliatory tariffs on about 40 U.S. agricultural and food products that were valued at about $1 billion and $250 million, respectively, in 2017. India has threatened to impose tariffs on seven U.S. agricultural and food products, which accounted for about $857 million in exports in 2017.

U.S. agricultural exports account for about 20 percent of U.S. farm income, according to USDA. Thus, any loss in exports could have negative economic consequences for U.S. farmers. Commodities that are highly dependent on exports to the retaliating markets may be more severely affected than others by any loss of markets from the tariffs. For instance, commodities for which U.S. exports to the retaliating countries represent 30 percent or more of its total exports include soybeans, sorghum, pork, cheese, apples, cherries, seafood, ginseng, whiskey, and some processed foods.

U.S. soybean exports to China for January through October 2018 are 63 percent lower than during the same time period in 2017 – a change due in large part to the tariffs. USDA is attempting to ease the downside effects of the retaliatory tariffs on farmers and ranchers through a $12 billion trade aid package. Under this initiative, USDA has committed to making direct payments to farmers of selected commodities subject to the tariffs, as well as buying up surplus quantities of some commodities and providing funding for additional trade promotion efforts.

In addition, legislation that was introduced in the 115th Congress sought to provide more trade assistance funding for farmers and ranchers, though none of the bills passed.

U.S. agriculture’s concerns and government response

Many agricultural groups have expressed concerns about the retaliatory tariffs. Exports account for about 20 percent of U.S. farm income, according to USDA, so U.S. farmers and ranchers have an interest in both maintaining and expanding export markets.

Farm groups are concerned about the immediate loss of export sales and the prospect of losing access to markets, or losing market share, over the long term. Over time, importers may identify new suppliers for a given product, as China has done for soybeans. Compounding that problem are new trade deals that are being discussed by the countries retaliating against the United States.

The EU-Canada free trade agreement (FTA) went into force in 2017, and the EU has finalized an FTA with Mexico. Mexico and Canada are signatories to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. If this FTA goes into force, Mexico and Canada would have improved access to nine other Pacific Rim markets. This means U.S. agricultural exports could face stiffer competition on its exports to Mexico and Canada.

The ASA has expressed “extreme disappointment” over USTR’s escalating tariffs on China that have led to retaliation on soybeans.

he NPPC has stated that the retaliatory tariffs are “threatening the livelihoods of thousands of U.S. pig farmers.”

The U.S. Dairy Export Council has warned that the retaliatory tariffs that China and Mexico have imposed could result in billions

To view the full Congressional Research Service report, visit here.


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