US trade war with China will affect the dairy industry

By Beth Newhart contact

- Last updated on GMT

This may be just the beginning of a lengthy trade war between the two powerful global economies. Pic: ©GettyImages/pixinoo
This may be just the beginning of a lengthy trade war between the two powerful global economies. Pic: ©GettyImages/pixinoo

Related tags: Cheese, Trade, China

New tariffs placed on $34bn of Chinese imports spawned retaliatory tariffs on US goods of the same value, inciting what could be a potentially destructive US-China trade war.

In the early hours of Friday morning, President Donald Trump approved tariffs on $34bn worth of Chinese goods. The tariffs will affect 818 Chinese products, including vaping devices, rare earth metals, thermostats and LED light bulbs.

China responded roughly 12 hours later by imposing its own tariffs on 545 US products, also worth $34bn. But China is mainly attacking US agriculture, including beef, wheat, seafood and dairy, as well as automobiles.

It may be just the beginnings of a lengthy trade war between the two powerful global economies, as President Trump has threatened to expand the tariffs to an additional 284 products, bringing the total up to $50bn per year.

Hitting dairy on purpose

The US dairy industry is no stranger to tax talks in 2018. President Trump first kicked off the discussion at the G-7 summit in Quebec in early June when he called out Canada’s high dairy tariffs on US products. Just days later, Mexico placed a 10% to 15% tariff on nearly all US cheese exports in retaliation for the tariffs Trump placed on Mexican steel and aluminum.

In 2017, the cheese exported to Mexico from the US accounted for 28% of all US cheese exports and 80% of all Mexico cheese imports, potentially causing a major ripple effect through the industry if the tariffs hold up.

China is now influencing US dairy trade as well. The dairy industry largely backed Donald Trump’s campaign based on his promises to protect farmers and jobs on American soil.

But with all the new taxes that the industry is being hit with, it’s possible that attitudes could shift. If it’s more expensive to sell dairy to major trading partners like Mexico, Canada and China, US farmers and processors will face more competition in other markets.

It’s also likely to cause an overproduction problem that the industry is unequipped to deal with while facing declining fluid milk consumption in the US.

Tom Bailey, a senior dairy analyst at Rabobank RaboResearch, authored a news brief on the Mexican cheese tariffs last month. He believed the pattern of dairy tariffs in particular indicated that “the countries we are negotiating trade with know where to put pressure on President Trump.”

The U.S. Chamber of Commerce spoke out last week against President Trump’s ongoing tariff trouble, expressing concern that it could hurt American consumers more than help them.

“The administration is threatening to undermine the economic progress it worked so hard to achieve,” ​said Chamber president Tom Donohue in a statement. “We should seek free and fair trade, but this is just not the way to do it.”

Related topics: Markets, Pricing Pressures, Fresh Milk, Cheese

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1 comment

Informative

Posted by Richard Jones,

Greetings from New Zealand have just read your newsletter for the first time and found it informative and interesting.

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