Widening trade disputes could affect more crops

Trade disputes between the U.S. and its trading partners have intensified, with China proposing new counter-tariffs on a wide range of U.S. agricultural products and now India joining the move.

China announced last week it would impose 25 percent tariffs on a total of 659 U.S. imports worth $50 billion, in response to new U.S. duties on $50 billion of Chinese goods.

The Chinese tariffs will first hit 545 U.S. products worth $34 billion on July 6. Most of the items on the list are agricultural products. They include commodities such as soybeans, corn, cotton, rice, wheat and tobacco; meats including beef, pork, poultry and seafood; milk and dairy products; and a variety of specialty crops including vegetables, fresh and dried fruits, and nuts.

Duties on an additional 114 U.S. products worth $16 billion would start at a later date.

At the same time, India said it has suspended trade concessions to the U.S. and plans to raise duties on 30 American products worth $241 billion. Agricultural products on that list include: almonds and walnuts, which face additional 20 percent tariffs; apples, with a 25 percent tariff; and chickpeas and lentils, with 10 percent tariffs. The additional duties—in retaliation for U.S. tariffs on steel and aluminum imports—were scheduled to take effect June 21.

India is the seventh-largest export destination for California agricultural products, according to the California Department of Food and Agriculture. Almonds were the leading farm export, valued at $489.9 million in 2016. Walnuts were No. 3, valued at $28 million.

Meanwhile, Chinese retaliatory tariffs on $3 billion of U.S. imports, including California farm products such as fresh and dried fruit, nuts and wine, have already been in effect since April. Those tariffs were also to counter U.S. tariffs on steel and aluminum.

"This is a very sobering development for California agriculture, particularly since we're so dependent on the export market to provide an outlet for the abundance of products that we produce," said Joel Karlin, commodity manager and market analyst for Western Milling in Goshen.

Regarding China's new tariffs, Karlin said California livestock producers who buy soybeans and corn for feed, especially dairy farmers, initially may benefit from a drop in prices of those commodities. But he warned the ongoing trade conflicts affecting agriculture could offset any temporary gain.

In addition to the new tariffs, China said it has scrapped a deal made with the U.S. last month to buy more American farm goods and other exports. This disappoints those hoping to expand dairy exports to China, Karlin said, as the latest U.S. tariffs give China "less incentive to procure U.S. dairy products."

California shipped $126.3 million of dairy and products to China and Hong Kong in 2016, according to CDFA. Dairy and products represent the fifth-largest California agricultural export to that region.

"Any chances of us exporting milk powders or cheese or any fraction of milk products to China have basically gone out the window," Karlin said.

In recent months, China has been importing more cotton, an indication that it is working through its reserves and is running low, said Jarral Neeper, president of Calcot, which markets cotton from California, Arizona, New Mexico and Texas.

California exported $88.5 million worth of cotton to China and Hong Kong in 2016. For the 2017-18 crop year, that value has jumped to about $185 million, Neeper said, due to increased shipments. Because China is a "fairly large importer" of pima cotton, which represents the majority of California cotton acreage, Neeper said the tariff "could have an impact" on state cotton exports.

"It could force prices lower here to make up for the difference of the 25 percent tariff," he said.

Though he said he doesn't know how the current trade dispute will affect the overall market, Neeper said a 25 percent tariff on U.S. cotton not only hits American cotton growers but also Chinese textile mills.

"Since some of those Chinese textile mills have operations in Vietnam, it just may mean that the cotton gets diverted to Vietnam instead of going into China," he said.

It'll be difficult for China to find another reliable source of pima cotton, Neeper said, as there aren't too many places except California that produce it. China could buy extra-long staple cotton from Egypt, and there are some varieties of pima produced in India, but not as good quality, he added.

Many textile mills, he noted, have licenses to use the Supima trademark, and the only way they could produce their goods is to buy U.S. pima cotton. With the tariff, the mills will have to pay more, and then that apparel will come back to the U.S. at a higher price, hitting U.S. consumers, he said.

"All of a sudden, your $80 Brooks Brothers dress shirt is 150 bucks," Neeper said.

U.S. beef had just begun to make inroads in China after a 13-year ban following U.S. discovery of bovine spongiform encephalopathy in 2003. Ever since shipments resumed last June, "interest in U.S. beef has steadily gained momentum in China and our customer base has grown," said Dan Halstrom, president and CEO of the U.S. Meat Export Federation. When China first proposed the 25 percent tariff on U.S. beef in April, he warned that "constructive business relationships and opportunities for further growth will be put at risk" if the tariffs take effect.

Of the vegetables that China has targeted, celery is the only one the state has exported in significant amounts, with a value of $3.5 million in 2016. California also shipped $3.9 million worth of rice to China and Hong Kong that year.

Claudia Carter, executive director of the California Wheat Commission, said the state has not shipped any wheat to China in the last four years because it does not produce enough to export. As such, she said she does not expect China's new tariffs will affect California wheat exports.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)