China announced last week that U.S. beef is one of the many products on which they will increase tariffs by 25 percentage points. The tariffs would raise the current tariff on U.S. beef products from 12 percent to 37 percent (see more details here). This is all part of the ongoing trade tit-for-tat in which the U.S. and China are currently engaged. Including beef, China listed 106 U.S. products that will be subject to a 25 percent increase. Approximately one-third of the products targeted are agricultural products.
China’s announcement came as retaliation to a U.S. proposal that would impose 25 percent tariff increase on imports of about 1,300 Chinese products – a total value of about $50 billion. The U.S. tariffs were proposed in reaction to the findings of the USTR 301 investigation and the alleged theft of American technology. Even more recently, President Trump asked the U.S. Trade Representative to consider an additional $100 billion in tariffs against China.
It is important to point out that these tariffs have not been enacted – they are proposed. A hearing on the tariffs imposed by the U.S. is set for May 15th. After that, up to 180 days is allowed for a final decision by the administration. It is possible that this could all get worked out before these tariffs are actually enacted.
While additional tariffs are certainly a bad thing for U.S. cattle and beef producers, it is a mistake to point to this development as the sole reason for declining market conditions over the past few weeks. Expected larger supplies are still the primary driver for lower prices. More so, mainland China has not yet become a major destination for U.S. beef. U.S. beef exports to China just resumed last June, and it will take a while for that market to fully develop. As shown in the figure above, the amount of beef we export to China is still small compared to Japan and South Korea. However, trade issues can hinder the growth of U.S. beef in China.
The impact of the tariffs on beef is pretty easy to grasp. They would make U.S. beef more expensive in China. This would likely slow the growth of the U.S. beef sales there. Also important are the indirect effects of the tariffs on other products. Pork is a prime example. If less pork is exported to China, it may end up with a lower price on the U.S. market – next to beef on the shelf. Perhaps the biggest underlying story in both beef and pork is that we are already dealing with large supplies here in the U.S. Exports are always important, but especially when beef and pork production is growing like it has the past few years. If the tariffs are imposed, that will likely decrease the amount of pork and beef that we export to China. That meat will either end up on the U.S. market or it we’ll try to find another outlet for it. Either of those options leads to lower value for producers.