Global trade disputes: Tit-for-tat tariffs, industries hit hard and no end in sight

24 Jul 2018 --- Trade wars, sanctions, the threat of further tariffs and the retaliation that is inevitably involved leads to uncertainty and concern in the economic community. Politicians vent their anger, civil servants compile lists exacting what products to target for maximum impact, farmers feel the pressure of imposed tariffs, entire industries are fretful of what the future will bring and the end-consumer will likely end up paying more.

The President Trump-inspired trade dispute of the last few months is doing just that as the US Administration is embroiled in different trade battles with several key allies – and it’s affecting several different industries across the food and drink supply chain. Right now, there is no way of knowing how long it will last as there are no real negotiations on the horizon.

The trade war between the US and China is fluctuating and escalating all of the time. 

After the initial US$34 billion round of tariffs on steel and aluminum imposed by the US of 25 percent and 10 percent on the grounds of “national security,” the Trump Administration now has a second proposed list of tariffs which is still awaiting public comment, expected to be completed at the end of this month.

This means that those latest duties – which affect a further range of food including pork, fish, soybeans, carrots, peas, chickpeas, mangosteen, guava, strawberries, bananas, coconut, peanuts, almonds, walnuts, chestnuts, pistachios, oats, corn, quinoa, rice, herbs and botanicals (seaweed, ephedra, ginseng), cod liver oil, cane sugar and beet sugar – could be scheduled to come into play by late August.  

And, of course, China is retaliating. It has suspended tariff concessions, some reaching up to 25 percent, on a wide range of US food products, including frozen pork, almonds, pistachios, wine, soybeans and fresh and dried fruit.

Among those hurt by the war of words and imposed tariffs between the two economic superpowers are US farmers across several sectors. One of those sectors is the soybean industry.

Soybeans under pressure 
China seriously upped the severity of its sanctions against the US when it targeted US soybeans for a 25 percent retaliatory tariffs, after initially not including the commodity on its list of items impacted. As the trade war between the two countries intensified, China added soybeans to a long list of food products that are subject to tariffs.

It’s not just in the US where soybeans are being put under pressure, Closely tied to the US market, Canadian farmers are being caught up in the crossfire as well. 

Some in the US soybean trade are turning to alternative markets to source the commodity. In fact, recent orders for almost one million tons of US soybean exports were canceled because there were much cheaper supplies coming from Brazil and the trade tension with China made US consignments far less appealing to buyers.

The US Department of Agriculture’s (USDA) World Agricultural Supply and Demand Estimates for July 2018, says the tariff that China recently imposed on US soybeans is expected to cause higher prices for soybeans in China and slower protein meal consumption growth.

“Lower demand and a year-over-year drawdown in stocks for China are forecast to result in a reduced crush and an eight-million-ton decline for imports to 95 million. Parallel to this change is a 6.8-million-ton decline for US exports that is partly offset by a 2.1-million-ton increase for Brazil.”

Planted area for Brazil for 2018/19 is expected to expand with higher prices resulting from increased trade with China, leading to a 2.5-million-ton increase in production to 120.5 million. 

“With lower soybean crush and reduced soybean oil production, China is expected to increase imports of other vegetable oils, including soybean, palm and rapeseed,” the estimate adds. 

What do US farmers think?
“This isn’t the first trade war, trade fight, so the tariffs are nothing new for me. Is it good? No,” says Bob Worth, who farms 2,200 acres of tillable land growing half corn and half soybeans in Lincoln County, Minnesota. 

“Six out of ten rows have to be exported so when you talk about tariffs or any hiccup in trade, we are affected,” he tells the BBC. “We all know that the balance of trade was very poor, but it’s always agriculture that gets first on the bumping list because we export so much of our product.”

Also, when China first announced it would include soybeans on its tariff list, purchaser, processor and transporter of soybeans in major supply chains around the world, Cargill told FoodIngredientsFirst how damaging a trade conflict between the two world economies could be.

“We are deeply concerned over the escalated trade tensions between the United States and China,” a spokesperson said at the time. “These two countries are linked, with China being the second largest market for US food and agricultural exports. We urge both countries to get to the negotiating table to constructively address their concerns with each other in a time-bound manner.” 

EU hits back 
In June 2018, the European Union imposed tariffs on a range of US consumer goods in response to steel and aluminum tariffs from the White House. Meanwhile, President Trump is also engaged in trade disputes with Mexico and Canada.

Referred to as “rebalancing measures,” the EU has adopted a regulation that puts in place the tariffs targeting a list of products worth €2.8 billion (US$3.2 billion). There are charges on a range of products including bourbon, cranberries and peanut butter. The move shows how the trade war is escalating as European Trade Commissioner Cecilia Malmström says President Trump’s tariffs left the Union with no alternative option.

“We did not want to be in this position. However, the unilateral and unjustified decision of the US to impose steel and aluminum tariffs on the EU means that we are left with no other choice,” she says.

“The rules of international trade, which we have developed over the years hand in hand with our American partners, cannot be violated without a reaction from our side. Our response is measured, proportionate and fully in line with WTO rules. Needless to say, if the US removes its tariffs, our measures will also be removed.”

Many ingredients caught in the crossfire 
In addition, concerns are also being raised that botanicals will be caught in the crossfire of the escalating US-China trade dispute as the Trump Administration’s second list of proposed tariffs targets key ingredients to the food and dietary sector. BI Nutraceuticals President and CEO George Pontiakos, is warning that the latest US government proposal for an additional 10 percent duty on US$200 billion worth of Chinese imports, could adversely affect “a vast range of industries including our own.”

“There are a large number of botanical and botanical-derived ingredients listed in the proposal, from dried beans to dried vegetables to ginseng, and much more. Currently, most botanical raw materials do not have duties, so it would raise them to 10 percent,” says Pontiakos in the latest edition of the company newsletter. 

“Botanical extracts and other items, on the other hand, already have duties and this proposal will further raise them. The timing is unpredictable at this moment, however, given the state of reaction/response it could occur quite quickly in our opinion.”

The US Chamber of Commerce has also taken a clear stance saying “Trade works, tariffs don’t,” asserting its belief that tariffs are the wrong approach. 

“Tariffs imposed by the United States are nothing more than a tax increase on American consumers and businesses – including manufacturers, farmers, and technology companies – who will all pay more for commonly used products and materials,” a statement says.

“Retaliatory tariffs imposed by other countries on US exports will make American-made goods more expensive, resulting in lost sales and ultimately lost jobs here at home. This is the wrong approach and it threatens to derail our nation’s recent economic resurgence,” it concludes.

By Gaynor Selby