How Effective Have China’s Agricultural and Seafood Tariffs Been?

How Effective Have China’s Agricultural and Seafood Tariffs Been?


China has a reputation for responding to tariffs—even ones introduced by countries following the rules—with retaliatory tariffs of its own. And its favorite targets have long been America’s agricultural (and seafood) exports.

The actual impact of the tariff though isn’t always quite as clear as many think—tariffs of course reduce direct trade, but their impact on direct trade can be a poor measure of their actual impact.

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The real impact depends on how easy it is for markets to adjust to the tariff. What are the workarounds? Can alternative markets be found? 

In some cases, the workarounds have turned out to be pretty easy.

Take chicken feet (or chicken paws).

China tariffed chicken feet back in 2009 in retaliation for the “tires” 421 case. The Peterson Institute paper on this case noted that the main impact of the tariffs on Chinese tires was a rise in imports of tires from the Southeast Asia. And it turns out that China’s retaliatory tariff, in this instance, was even less effective.

Exports to China plummeted…

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But exports to Hong Kong soared.

U.S. Exports of Chicken Paws (Chicken and Chicken Parts, T3M Sums, USD Millions)

Total exports to China and Hong Kong were essentially unchanged. Overall U.S. chicken exports actually rose.

Guess what really led to a fall in U.S. exports of chicken paws? Bird flu.

There may be a lesson there.

Now consider one of the more prominent—at least judging by the press coverage—industries that has been hit by Chinese retaliatory tariffs in the recent trade war: lobster.

The fall in U.S. lobster exports to China generated stories in the Atlantic, in the Washington Post, and on PBS. And in Bloomberg too of course.

But there are, in fact, markets other than China for U.S. lobsters, and suppliers other than the United States for China. Given the large two-way trade in lobsters between the United States and Canada, the obvious adjustment would more or less be “Canada exports more lobster to China, and the U.S. exports more lobster to Canada/imports fewer lobsters from Canada.”

That’s what some lobster industry folks believe happened: “Lobster from Maine is coming into Canada and being exported to China,” says Geoff Irvine, executive director of the Lobster Council of Canada. “Everybody knows what’s happening”.

And it is a story that is reasonably well backed up in the data. Over the last two years, the “peak” in U.S. lobster exports (dollar value) to Canada rose by just under $50 million (using a trailing 3M sum). That’s roughly equal to the somewhat larger than $50 million drop off in “peak” lobster exports to China.*

U.S. Exports of Lobster (Crustaceans, T3M Sums, USD Millions)

As a result, China’s tariff on U.S. lobster exports didn’t have much of an impact on total U.S. lobster exports back in 2018—the bigger fall in dollar value of U.S. lobster exports came from 2014 to 2016, before the tariffs.

The story in 2019 is more complicated.

The Maine lobster harvest was both late and small.

As a result, prices were on the high side last year—even without direct exports to China. The Portland Press Herald noted, “The average per-pound price in 2019 was a whopping $4.82, the highest since Maine began tracking lobster hauls in 1880.”

That kept the dollar value of the catch up. And because of the smaller and later U.S. harvest, the United States reduced its exports to Canada a bit even as exports to China continued to fall.

Trade in Lobsters in 2019 A Small Harvest Lowered U.S. Exports (T12M Sums, USD Millions)

And more importantly, the United States started importing a lot more Canadian lobsters. American consumers in fact were competing with China for Canada’s limited supply.

U.S. Lobster Trade with Canada (Crustaceans, T3M Sums, USD Millions)

That may be a sign of thing to come if the Gulf of Maine continues to warm.

Now the coronavirus has really shut down the lobster trade—Canadian exports to China have slowed, as the virus has reduced demand from restaurants (and it also has reduced the flights that take Canadian and bootlegged American lobsters to China). Lobster prices are down, even with the “phase 1 deal.”

There is another viral story playing out on the export side of the ledger.

U.S. Exports of Pork (Meat of Swine, T3M Sums, USD Millions)

U.S. exports of pork to China were soaring well ahead of the formal phase one deal, thanks to the impact of swine fever on China’s production. Exports to China have been so strong that they have raised overall pork exports significantly.

Indeed, pork alone has been driving a strong upward trend in overall meat and seafood exports to China—and hopefully once some of the disruption associated with COVID-19 has passed, the increase that follows the phase one deal will be broader. There is no real doubt that Chinese trade barriers kept both U.S. beef and U.S. pork out of the Chinese market over the last ten years, so there is scope for increased trade.

U.S. Meat and Shellfish Exports to China (T3M Sums, USD Billions)

Of course, experts in agricultural trade know that the really big dollars aren’t in meat and seafood. The bulk of trade traditionally has been in animal feeds—and specifically in soybeans.

Soybeans wouldn’t normally be considered a good trade war target.

Soy, after all, is a commodity—Brazilian beans and U.S. beans are pretty close substitutes. And in many cases, commodity trade can sort of roll around the tariff with out much global impact.

Yet there is no doubt that China’s tariff on soy did have an impact. China reduced not just U.S. soybean exports to China in 2018, but U.S. soybean exports globally.

But it is worth noting the extreme measures China took to achieve this result.

U.S. Soybean Exports to China vs. World (T3M Sums, USD Billions)

The U.S. harvest usually ships out in the fourth quarter. China usually buys about two-thirds of the crop then. In the fall of 2018 China—through tariffs, but also through its control over state-owned oilseeds importing companies (COFCO and Sinograin) and its control over licensing for smaller private importers –brought its imports of U.S. soy down to zero.

That boycott during the normal buying season was so powerful that it led U.S. beans to trade at a discount in the global market, which is pretty clear evidence of impact. The distortions in the market were so large that the United States was even briefly shipping ‘beans to Argentina so that Argentina’s crushers could crush U.S. beans into soymeal to supply their traditional markets while freeing up uncrushed Argentine beans for China (China likes to do its own crushing).

I am sure the Trump administration got the message. It was a clear demonstration that China knows how to manage a big portion of its trade. They probably could have shut down the chicken parts trade through Hong Kong had they really wanted to back in 2009 too.

The lessons here—

When China is a big enough buyer, it can have a big impact even on commodity markets. Soybeans for example. Especially in sectors where China’s state controls the firms doing the bulk of the actual importing, and it can enforce a full boycott.

When China is a more marginal buyer, the impact of tariffs is likely to be smaller, particularly if there are obvious ways of getting around the tariffs.

Consequently, stories and studies that look only at the bilateral data can overstate the actual impact of retaliatory tariffs.

And biology—bird flu and swine fever—has had a large impact on Sino-American agricultural trade even before the coronavirus disrupted all trade.

 

* The peak in shipments to China actually comes a few months after the peak in exports to Canada. That would suggest that China imports a lot of frozen lobster, which runs a bit against the anecdotes on the “live” trade.



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