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US pork, fruit, nuts and wine on China’s list of retaliatory trade tariffs

China’s tit-for-tat response to proposed US trade sanctions promises to have big impacts on global trade in farm goods – with pork, nuts and cherries among the sectors most affected.

The Chinese agriculture ministry has published a list of 128 products that will have additional tariffs applied if the US pushes ahead with actions announced by President Donald Trump on Thursday (March 22).

While some of these items are of little importance to US exporters, others are worth hundreds of millions of dollars. And for products such as pork, new tariffs will make it harder for the US to compete with key rivals – notably the EU and Canada – in what is by far the world’s largest market.

If confirmed, China’s retaliatory measures would see tariffs of 15% put on various fruit and nut products, along with wine and modified ethanol.

The tariffs would kick in unless the US and China are able resolve differences within a "stipulated time."

Threat to pigmeat

A second tranche of products would face 25% tariffs after China has “further evaluated the impact of US measures on China.” This second list includes not only pork but also pig offal - a product of huge importance in bilateral trade.

US exports of pig products to China were worth more than USD500 million last year – around half of which was accounted for by offal. Almost as much again was earned by sales to Hong Kong, much of which found its way the Chinese mainland*.

With Chinese import demand currently on the wane however, new Chinese tariffs could not come at a worse time for US exporters who have already seen their market share eroded in recent months.

Conversely, the EU and Canada could see big gains if the US-China trade war is not averted. It would also favour China’s domestic pig industry, which has been wrestling with a collapse in prices caused by oversupply.

China estimates that products provisionally selected for retaliatory tariffs were worth USD3 billion to US exporters last year. With US exports of food and farm goods to China worth close to USD20 billion, this leaves a large number of important products untouched.

It should also be noted that the current list involves a number of non-farm goods, such a recycled aluminium, along with some items that are currently of little importance to US exporters.

One such product is ethanol. Until last year, China was a major importer of US ethanol – with purchases worth as much as USD245 million in 2016. Chinese imports of US ethanol fell by almost 99% last year however following the removal of a preferential import tax rate.

Meanwhile, US beef exporters will be relieved their products are not on the retaliatory list given that the product only recently secured access to the Chinese market.

 

Nuts and fruit

China’s retaliatory list includes a number of products that the US does not ship to the country in any significant quantity. These include cashew nuts, brazil nuts and desiccated coconut.

Reduced sales to China would have a significant impact on many other products however, notably almonds, walnuts, pistachios and some types of fruit.

Chinese imports of US almonds were worth USD98 million in 2017, while imports of walnuts were worth almost USD32 million. Imports of US pistachios amounted to USD39 million, while trade in fresh cherries was worth USD122 million. Imports of US fresh apples generated a relatively modest USD18 million.

Neil Murray, IEG Vu’s head of processed commodities, notes that Chinese imports of fresh apples are small when considering that China produces 44 million tonnes of its own and exports up to 2 million tonnes a year.

Frozen commodities

The US frozen commodities potentially affected by a potential increase of the tariff from Chinese authorities are not showing volumes which may be a reason of concern for the industry, according to IEG Vu analyst Cristina Nanni.

In 2017, China imported 11,026 tonnes of frozen strawberry [HS 08112000] and only 910 tonnes came from the US as its main suppliers are Morocco (4,303 tonnes) and Egypt (2,387 tonnes). In this same period, China exported 78,830 tonnes for a corresponding value of USD110 million. These figures suggest that Chinese domestic production is large enough to widely cover the domestic demand that, according to some sources, has increased in the past two years.

Figures are even lower for other frozen berries [HS 08119090], including raspberry and blackberries, as there are no volumes traded between China and the US. Also in this case, Chinese exports are much higher than its intakes and in the range of 15,000 tonnes per year.

If confirmed, Nanni says the list of the frozen items which may be subject to retaliation seem to be a pure political exercise. It left out other largest segment like frozen French fries [HS200410] of which the US is China’s first supplier with 76,060 tonnes shipped in 2017 out of a total intake of the country of 124,427 tonnes.

Nanni says an increase of the duties will certainly cut the US out of the berries trade whose demand for fresh in China has recorded a sharp increase in the past two years.   

Wine

US wine is also covered by China’s proposed new tariffs. While not one of China’s biggest suppliers, Chinese imports of US wine and grape must were still worth around USD74 million in 2017.

In volume terms, China imported about 10,000 tonnes of bottled wine from the US last year and 1,000 tonnes of bulk.

Murray says this is “not massive but is still a reasonable volume”. Chile, South Africa and Spain are all big bulk wine exporters to China, as is Australia.  All bulk wine imports come in at about 180,000 tonnes, and all bottled wine imports are over 550,000 tonnes with France and Australia heading the list (220,000 tonnes and 108,000 tonnes respectively).

If the trade war escalates, US exporters will be concerned that some even more lucrative products may be hit by Chinese tariffs – above all soy. US soyabean exports to the Chinese market were worth more than USD12 billion in 2017.

*Please note: all figures in chart below are based on US data for exports to mainland China. Some other media outlets have included total exports to China and Hong Kong combined. This is somewhat misleading as:

  • The proposed new Chinese tariffs wouldn’t apply when products first reach HK.
  • Not all of HK imports would then be re-exported to China.
  • Some re-exports of US pork to China would not be subject to the new tariffs if further processed in HK.
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