Last week, the United States announced its plans to impose an additional 10% tariff on the remaining $300 billion in Chinese products coming to the U.S., starting on September 1. In response to the U.S. actions, Beijing announced this week that Chinese companies had suspended purchases of U.S. agricultural products, and that the government has not ruled out putting additional tariffs on U.S. farm goods purchased after Aug. 3. Sources tell IDFA that news reports stating China has “stopped” purchasing U.S. ag products are overblown. They contend the Chinese have not stopped purchases of U.S. products; instead, the Chinese have rescinded any tariff waivers granted to certain products (such as soybeans), so all products are back to the 25% retaliatory tariff. It remains to be seen how closely private Chinese companies and state-owned enterprises (SOE) follow the government of China’s signals.
In the first half of 2019, the value of U.S. exports of cheese to China fell by 46%, whey was down 47%, and milk powder was 80% lower. U.S. dairy export value to China peaked in 2017 at $577M, fell 29% to just over $500M in 2018, and fought to $195M through June of this year.
Tensions began to rise this week after the U.S. Treasury labeled China a currency manipulator. The reason cited is the Chinese central bank let the yuan depreciate. People’s Bank of China Governor Yi Gang said that China won’t engage in competitive devaluation and that the decline was due to market forces. The Treasury uses three criteria to apply the designation of currency manipulator to a foreign nation: actively intervening in their own currency markets, having large trade surpluses with the United States, and having large overall current-account surpluses. This week’s action by the Treasury is mostly symbolic: it requires the Trump administration to consult with the International Monetary Fund to try to eliminate the unfair advantage the currency measures have given China, but then the ball is in the U.S. administration’s court to negotiate a resolution with the Chinese government.
IDFA will continue to make it clear to the Administration that a market- and rules-based system of international trade is a necessity for the U.S. dairy industry. For the latest on China, see IDFA’s Fact Sheet. FACT SHEET