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Trade Wars Now a Reality

07/11/2018

The U.S. farming community awoke on Friday morning July 7th to the reality of a trade war.  Threatened tariffs on imported Chinese equipment including auto parts and medical devices valued at $34 billion came into effect at midnight triggering retaliatory tariffs imposed by China.  These amount to 500 categories of U.S. products. Additional tariffs are proposed on as much as $500 billion in products shipped by China to the U.S. in an ongoing reciprocal series of countermeasures.

 

Soybean and hog producers will be the most affected in the short term.  China imported U.S. soybeans valued at $14 billion in 2017.  Imposition of a 25 percent duty following tariffs on steel and aluminum from China in April effectively eliminated trade in soybeans now dominated by Brazil.  Hog farmers will be excluded from their market in China based on a price differential represented by newly imposed tariffs, including VAT will represent an 81 percent ad valorem boost in price.  The implications for companies exporting hogs to China is self-evident.  It is estimated that currently one out of every four U.S. hogs is exported to China.  A prominent family-owned integrator in the Midwest estimates that the company will lose $100 million on 5.5 million hogs spread across ten states.

 

To add to the woes of the hog industry, Mexico has imposed a 10 percent retaliatory tariff on chilled and frozen pork with a 20 percent rate effective Friday July 6.

 

Secretary of Agriculture Dr. Sonny Perdue has commented on “a plan to help protect farmers and agriculture businesses.”  EGG-NEWS has previously noted that any compensatory payment to farmers will increase the national debt and will engender opposition from Congress.

 

 

It is hoped that the present situation is only extreme brinkmanship and that China and the U.S. will recognize the folly of “assured mutual destruction” and will negotiate a satisfactory resolution to the outstanding problems of an imbalance in trade and misappropriation of intellectual property.  Failure to restore free trade will have both social and political implications for the U.S. and especially for the agricultural sector of the economy.