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Impact of the U.S.-China Trade War on California Agriculture Colin A

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Impact of the U.S.-China Trade War on California Agriculture Colin A Impact of the U.S.-China Trade War on California Agriculture Colin A. Carter and Sandro Steinbach The U.S. Administration’s attempt In a 2018 ARE Update article, Carter Overall, the trade war has done little to force economic policy reform analyzed the initial round of China’s to change Chinese policies but the in China by starting a trade war retaliatory tariffs and concluded that tariffs have harmed U.S. consum- has failed to meet its goals. China for wine, walnuts and table grapes, ers and reduced economic growth retaliated with import tariffs that there would be little export price in the United States. A recent study target U.S. agriculture. We review impact but a loss of market share for found that due to higher prices, U.S. the impact of China’s retaliatory California exporters in the Chinese consumers have lost $51 billion on tariffs on a collection of California market. For almonds and pistachios, purchased products such as textiles, agricultural products, including Carter concluded that the volume of apparel, furniture, leather goods, and fruits, nuts, and wine. For almonds U.S. exports would not be unduly other manufactured products. impacted. We show below that the and pistachios, the tariffs did not U.S. consumers of the seven agricul- export volume impacts on these com- reduce the volume of U.S. exports tural commodities analyzed in this modities turned out as anticipated by to China. However, the trade war article may have benefitted from Carter. With the retaliatory tariffs in diminished California exports of lower prices (due to diminished place, Chinese consumers ended up walnuts, wine, oranges, and table exports) if wholesale/retailers passed paying higher prices for almonds and grapes. on the savings. So far, the U.S. govern- pistachios; nevertheless, imports of ment has spent $28 billion to compen- these tree nuts from the U.S. remained sate farmers harmed by the trade war, steady because of the U.S. position as further reducing economic efficiency. the dominant global supplier. In some cases, farmers have come out In 2018, the U.S. started a trade war by In the case of almonds and pistachios, ahead in the short-run after receiv- introducing import “safeguard” tariffs the U.S. has 86% and 71% of world ing government subsidies, but in the and quotas on washing machines exports, respectively. The U.S. share long-run the trade war could damage and solar panels, followed up by of walnut exports is lower (54%), and the reputation of U.S. agriculture as tariffs on steel and aluminum appar- China is actually a net exporter of wal- China pivots towards other export ently imposed for national security nuts. As a result, U.S. walnut exports suppliers. reasons. Then the U.S. levied addi- to China declined somewhat due to Table 1 shows the escalation of tional tariffs on hundreds of Chinese the trade war. products. One of President Trump’s China’s retaliatory tariffs in 2018 stated goals was to use import trade Table 1. China Import Tariffs in Response to U .S . Tariffs barriers as leverage to force China to change its policies regarding intellec- HS Product Former 2018 2019 tual property rights and government Commodity Code Tariffs (%) Tariffs (%) Tariffs (%) subsidies. In response, China imposed 80211 Almonds, In Shell 10 25 60 retaliatory import tariffs, specifically targeting U.S. agricultural exports. 80212 Almonds, Shelled 10 25 60 These retaliatory tariffs have reduced 80231 Walnuts, In Shell 25 40 75 U.S. agricultural exports to China by 80232 Walnuts, Shelled 20 35 70 close to $14.4 billion per year, elim- 80251 Pistachios, In Shell 5 20 55 inating China as the number one export market for U.S. agriculture. In 80252 Pistachios, Shelled 5 20 55 this article, we focus on a relatively 80510 Oranges, Fresh 11 26 61 small share of this total agricultural 80610 Grapes, Fresh 13 28 63 trade and study seven agricultural 220410 Sparkling Wine 14 29 54 commodities exported primarily from 220421 Wine 14 29 54 California to China (see Table 1 for the list of products). Source: USDA FAS GAIN Report Number: CH2019-0194, 1/05/20 Giannini Foundation of Agricultural Economics, University of California 9 Figure 1. Average Chinese Imports from the U .S . Before and After the Tariff Increases (a) Import Value (b) Import Quantity Almonds Almonds Pistachios Pistachios Walnuts Walnuts Grapes Grapes Oranges Oranges Wine Wine 0 100 200 300 400 500 0 20 40 60 80 Import Value in Millions of $ Import Quantity in Thousands of Tonnes/Kiloliters Average for 2016/2017 Average for 2018/2019 Average for 2016/2017 Average for 2018/2019 Source: Chinese customs statistics (Trade Data Monitor, 2020) and 2019. California farmers are the which we evaluate the market impact of Chinese almond imports from the primary U.S. supplier of the seven tar- of the Chinese retaliatory tariffs. United States increased from $75 to geted products listed in Table 1. Before 2016/2017 is the “before” the retalia- $160 million and pistachios from $137 the trade war, China’s import tariffs tory tariffs period and 2018/2019 is the to $394 million in 2018/2019 over on the commodities listed in Table 1 “after” period. In Figure 1a, we report 2016/2017. ranged from 5% on pistachios to 25% the before and after value of imports In contrast, the annual value of on walnuts. China’s initial World into China from the United States and China’s imports from the United Trade Organization tariffs on walnuts Figure 1b reports import quantities. States declined by 20% and 29% were relatively high (20 to 25%) to for wine and walnuts, respectively. protect its large domestic industry. Incidence of China’s Therefore, we believe there was The annual production of walnuts Retaliatory Import Tariffs some trade destruction for the targeted in China is close to 1 million metric There are three potential effects products, but this was countered by tons, compared to less than 600,000 associated with the retaliatory tar- the substantial growth in China’s metric tons in the United States. iffs. First, is trade destruction, causing pistachio imports from the United China is self-sufficient in walnuts but U.S. exporters to lose sales to China. States. remains reliant on world markets for Second, is trade diversion, which results pistachio and almond supplies. For from China importing the products Although the U.S. remains a major instance, China is the world’s largest in question from other exporting supplier of these seven products pistachio importer. It is the third-larg- countries. The third is trade deflection, to China, it has lost significant est importer of almonds and the which means the U.S. shifts lost sales market shares to foreign competitors third-largest importer of fresh oranges. to China to other importing nations. partially due to the trade war. Table 2 Below, we briefly discuss each of these summarizes changes in U.S. market In the first wave of retaliation, China potential impacts. shares in China and shows the raised its tariffs to the 20% to 40% maximum potential trade losses due range. Then, in the second wave, some The annual value of Chinese imports to the tariffs as the percent difference of China’s retaliatory tariffs more of the seven targeted products (in between columns C and D. As shown than doubled from 2018 to 2019. At Table 1) from the United States in columns A and B in Table 2, all present, U.S. walnut exports face the increased from $439 to $706 million products experienced a significant highest tariff (75%), while the tariff on from 2016/2017 to 2018/2019, drop in market share, with the U.S. pistachios is 55%, up from 5% before according to Chinese customs market share for almonds dropping the trade war (see Table 1). statistics. Figure 1 compares import by more than 55%, from 97.4% to 44%. value and quantity of the targeted We use international trade data from Therefore, lost trading opportunities products. The annual average value 2016 and 2017 as a benchmark against amplified the trade destruction. 10 Giannini Foundation of Agricultural Economics, University of California Table 2. Average U .S . Market Share in China for 2016/17 and 2018/19 and Potential Trade Losses Column A Column B Column C Column D Average U.S. Market Average U.S. Market 2019 Imports 2019 Imports from Percent Change Commodity Share for 2016/2017 Share for 2018/2019 from the U.S. the U.S. Assuming (%) (%) ($ mil) Average 2016/2017 Column (C - D) / C Market Share ($ mil) Almonds 97.4 44.0 197.1 511.9 -159.7 Pistachios 90.8 67.8 483.4 734.5 -52.0 Walnuts 87.8 66.2 14.3 24.1 -68.9 Grapes 8.7 3.1 6.0 56.2 -829.8 Oranges 25.9 14.7 38.2 103.3 -170.8 Sparkling Wine 0.4 0.3 0.1 0.4 -472.1 Wine 2.7 2.2 32.9 59.1 -79.4 Source: Chinese customs statistics (Trade Data Monitor, 2020) Assuming average 2016/17 market a significant decline from 2016/2017 to pistachios substantially increased shares for 2019, Chinese imports from 2018/2019. Only grapes recorded an their exports to China, they also lost the U.S. could have been double their increase in export quantities to other market shares in that growing market. current 2019 level ($1,489 million countries in the same period (plus This implies that U.S. exporters had instead of $772 million). Although 5.5%).
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