The United States’ number one beef importer for value and volume is hiking its tariffs on U.S. beef products.
The United States received notice from Japan on Friday that it would hike the tariffs on U.S. frozen beef from 38.5 percent to 50 percent on August 1 through Japan’s fiscal year, which is the end of March 2018. There is a separate safeguard for fresh, chilled beef.
“Initially this is a psychological impact because this actually goes in the opposite direction of what the Japanese Prime Minister, Shinzo Abe, has been advocating where he’s been [trying to] revitalize the economy,” said Philip Seng, president and CEO of the U.S. Meat Export Federation (USMEF). “It’s going to retard growth and have an impact on our exports. This will impact year-end sales.”
This comes just days after The United States Department of Agriculture (USDA) announced the U.S. beef herd is expected to jump in beef production during the fourth quarter of 2017.
“I am concerned that an increase in Japan’s tariff on frozen beef imports will impede U.S. beef sales and is likely to increase the United States’ overall trade deficit with Japan,” said Sonny Perdue, U.S. agriculture secretary, in a statement. “This would harm our important bilateral trade relationship with Japan on agricultural products.”
Seng said the impact could hinder year-end sales.
“This will have an impact,” said Seng. “The impact will be felt probably in the next month or two. It’s not going to be immediate because of the inventory levels.”
Japan is able to implement the action because the country introduced safeguard tariffs in 1994 under the World Trade Organization (WTO). The country can raise tariffs when imports rise more than 17 percent year-on-year in any given quarter to Japan from all countries.
“It’s really unfortunately because [the United States] only exceeded this level we needed by only 113 metric tons, which is a very small amount,” said Seng. “[That number] is less than one percent.”
Seng believed this move by Japan occurred now for a number of factors. First, there were record setting imports coming into Japan for the first quarter of the Japanese fiscal year. Second, he believed another reason the U.S. may have seen this hike is because Japan bought U.S. beef at an optimum rate due to Australia’s drought and the uncertainty with the U.S. and China’s beef deal.
“This puts a ceiling on our level of exports,” said Seng. “Where we were preforming very well in the first quarter, people will be watching over the next few quarters at least with our chilled exports to make sure that we do not trigger the safe-guard. That’s going to crimp our market exports to some degree.”
The United States isn’t the only country feeling the pain. Canada and New Zealand will see an increase to a 50 percent tariff on frozen beef products because they don’t have a Free Trade Agreement with Japan. Countries like Australia, Mexico and Chile will be exempt because they have an agreement. All three have smaller tariff numbers than beef from the U.S.
Ag. industry leaders say a bi-lateral trade deal takes time. Seng said Australia negotiated for six years to achieve an economic partnership with Japan. It took the European Union six years to do the same. Seng said the U.S. needs to engage with the Japanese parliament to see if the tariff increase can be removed.
“TPP is where we need to be if we’re going to even maintain a level playing-field with our competition from Australia as well as Europe,” said Seng.
President Trump withdrew the U.S. from the Trans Pacific Partnership agreement. The president is vocal about bi-lateral trade even though TPP would have lowered U.S. beef tariffs to nine percent over time.
“From my personal standpoint, my suggestion would be let’s go back and look at the Trans Pacific Partnership and see if there’s some way we can get in there,” said Seng. “There may be some amendments to it. Maybe we could join TPP from an agricultural standpoint. [Otherwise], an FTA is a burden we don’t hold in our hand and we don’t know where that is going to take [the United States].”
Craig Uden, President of the National Cattlemen’s Beef Association says in a statement, “We hope the Trump Administration and Congress realize that this unfortunate development underscores the urgent need for a bilateral trade agreement with Japan absent the Trans-Pacific Partnership.”
“I think it really shows that we need to get these trade agreements put together,” said Nalivka. “I’m a firm believer in bi-lateral trade agreements because I think it creates greater opportunity to sit down and really go through the issues that are important and need to be discussed and negotiated. I think bi-lateral trade agreements create greater opportunity that we don’t give the farm away.”
Some wonder if Japan will continue to buy U.S. beef at a higher price.
“A lot remains to be seen,” said John Nalivka, President of Sterling Marketing, an agricultural research and consulting firm. “[The United States has] imported a lot of beef into the United States with a pretty good tariff on it from other countries and we still continue to buy it because the demand exceeds the supply.”
Nalivka said the U.S. has an advantage with a number of factors.
“Number one, it’s the price of the product,” said Nalivka. “[It’s also] the value of the U.S. dollar, which as weakened, which makes our beef cheaper due to a weaker dollar. Japan also has pretty strong demand. Those things are on the positive side [for the United States] when it comes to sales to Japan. Our quality grades have been up significantly this year because we’re harvesting more Choice Beef this year than we have well above year ago.”
The question is whether the cheaper U.S. dollar will make a difference.
“The biggest factor that is going to impact the safeguard,” said Seng. “That’s bad enough but because Japan and Australia entered an economic partnership agreement, Australia has a 27.2 percent duty on their frozen product.”
Nalivka said U.S. exports are doing quite well in some other but he doesn’t expect China to pick up the exports due to its stipulations of non-hormone and non-antibiotic.
“We don’t have that many cattle around right now that will meet that protocol,” said Nalivka. “Our export market into China is not going to begin until this year’s calf crop. Our exports to South Korea and Hong Kong have been strong this year as well as to Japan.”
Yet, real damage may be done to the Japanese trade and food industry of buyers, customers and restaurants and food service industry.
“Nobody wins in this situation,” said Uden, a cattle rancher from Nebraska. “Our producers lose access and beef becomes a lot more expensive for our Japanese customers.”
“When you take a look at the Japanese food service industry and the retail industry, that’s about 15 percent of the entire Japanese economy,” said Seng. “I check the Japanese farmer’s website. There’s been nothing on their websites where [the articles say Japanese] farmers are asking for this. In Japan today, they have record high prices, even where they were last year.”
Slower growth to Japan’s economy could go against Shinzo Abe’s wishes for the administration and his country.
“Hopefully, there’s ways that calmer minds can prevail and we can remove this thing in the very near future,” said Seng.
About half of the beef the U.S. sends to Japan is frozen. U.S. exports of beef and beef products to Japan totaled $1.5 Billion last year, making it the United States’ top market.
Hear Nalivka's comments on the increase above.