Farmers or Importers: Who Pays the Price of Retaliatory Tariffs?

09:32AM Aug 23, 2019
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U.S. farmers are taking the brunt of retaliatory tariffs placed on their products, says a Knowledge Exchange report released by CoBank on Thursday.

In an analysis of 11 U.S. agricultural commodities representing a cross-section of agricultural exports from almonds to pork, U.S. producers — not the importing country or its consumers — paid much of the cost of these tariffs in all but two cases, CoBank reports.

Pork Industry Takes Big Hit
It's no surprise that in the animal protein sector, retaliatory tariffs are primarily targeting the most exported animal protein – pork. With more than a quarter of U.S. pork being exported around the world, CoBank’s lead economist for animal protein, Will Sawyer, says the tariffs from Mexico and China have especially hurt hog prices and hog producer bottom lines the past few years. 

“When Mexico levied a 20% tariff against U.S. pork in the summer of 2018, we found it was the U.S. hog producer who actually paid the tariff, not the Mexican importer or consumer,” Sawyer says. 

This dynamic reflects our country’s reliance on the Mexican market, he adds.

“Nearly half of all hams produced in the U.S. go to Mexico. While Mexico lifted these tariffs this spring, we expect pork to continue to be the hardest hit protein industry when trade disputes bubble up in the future,” Sawyer says.

In the case of pork exports to China, when China increased its tariff on U.S. pork by 50% in the summer of 2018, the U.S. pork meat export value to China declined by 32% year-over-year in Q4 2018.

Although Mexico’s 20% tariff was significantly less than China’s 50% tariff, the value of U.S. exports declined by a very similar amount, the report says. This indicates the importance of pork in China as well as the rising pork prices in China in late 2018.

“The outbreak of ASF in China has drastically transformed its and the world’s pork supply and demand in the last year, yet the continued trade dispute between the U.S. and China will mean trade flows of U.S. pork to China will be driven more by politics than economics,” the report says.

Lopsided Balance of Power
The impact of retaliatory tariffs placed on U.S. farm products reflects the lopsided balance of power between U.S. producers and their importing customers, CoBank says. 

The longer tariffs remain in place, the more time competitors will have to take away U.S. market share and establish trade relationships. 

U.S. producers of most agricultural commodities will face pressure to absorb more of the costs of retaliatory tariffs in the future with the prospect of declining bargaining power. 


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