Chinese and Mexican Tariffs Will Cost Dairy Industry Billions If Left Unchecked
Luke Waring, USDEC
Retaliatory tariffs by China and Mexico could lower dairy exports by $2.7 billion and depress dairy farmers' revenues by $16.6 billion over the next several years unless they are rolled back. Moreover, U.S. economic output tied to the dairy industry would fall by more than $8 billion and 8,200 U.S. jobs would be imperiled through 2023.
Those findings are according to a study commissioned by the U.S. Dairy Export Council and conducted by Informa Agribusiness Consulting that estimated the economic impact of ongoing trade disputes on the U.S. dairy industry. The study only examined current tariffs, meaning the damage would worsen if other proposed duties take hold, as China has threatened (for the executive summary, click here).
In considering a shorter time horizon, during which the industry may be forced to endure the impact of the retaliatory tariffs, the study forecasts losses to dairy farmers at $1.5 billion this year alone and at roughly $3 billion in 2019. Those losses are the result of anticipated drops in exports due to the retaliatory tariffs of $530 million by the end of next year.
"The damage is real, and it is being felt by dairy farmers, dairy businesses and dairy exporters every day," said Tom Vilsack, president and CEO of the U.S. Dairy Export Council (USDEC). "Exports hold tremendous potential for our industry and the struggling rural economy, but we must address these tariffs immediately for that potential to be realized."
The situation in China is particularly problematic, according to Informa. Tariffs have now reached 45 percent on some U.S. dairy products, which puts America at a great competitive disadvantage to suppliers from Europe, Australia and New Zealand that don't face the same barriers and in some cases have free trade agreements with China.
Lost sales in China are predicted to cost U.S. dairy farmers $12.2 billion by 2023 if retaliatory tariffs remain in place. In 2018 those impacts to dairy farmers due to lower exports to China are expected to tally $1.1 billion and to total $2.2 billion in 2019.
Prior to July's tariff increase, Chinese sales were growing - up 49 percent from 2016 to 2017 - thanks to industry investments in education, customer development, partnerships and infrastructure improvements.
"We've spent years cultivating overseas markets, and those investments are slowly eroding," explained Jaime Castaneda, USDEC's senior vice president. "We are losing market share, and once it's lost, it is very hard to reclaim. We need our government to bring these tariffs to an end immediately with Mexico and find solutions going forward with China."
Mexico announced duties of up to 25 percent on U.S. dairy products on May 31 in retaliation for U.S. steel and aluminum tariffs. This announcement was good news for Europe, which had just concluded a trade deal with Mexico and was eager to absorb America's lost dairy sales.
"The future is uncertain for U.S. dairy farmers, making it difficult to plan any distance into the future with realistic expectations," concluded the Informa report. "What is for certain, is the U.S. dairy sector will continue to suffer under Chinese and Mexican retaliatory tariffs for as long as they are in place."
The U.S. Dairy Export Council is a non-profit, independent membership organization that represents the global trade interests of U.S. dairy producers, proprietary processors and cooperatives, ingredient suppliers and export traders. Its mission is to enhance U.S. global competitiveness and assist the U.S. industry to increase its global dairy ingredient sales and exports of U.S. dairy products. USDEC accomplishes this through programs in market development that build global demand for U.S. dairy products, resolve market access barriers and advance industry trade policy goals. USDEC is supported by staff across the United States and overseas in Mexico, South America, Asia, Middle East and Europe. The U.S. Dairy Export Council prohibits discrimination on the basis of age, disability, national origin, race, color, religion, creed, gender, sexual orientation, political beliefs, marital status, military status, and arrest or conviction record. www.usdec.org.