Will a trade truce with China be the start of pork producers’ recovery?

Source : gaodeng Time : 2018 年 12 月 10 日

After a meeting between President Donald Trump and China’s President Xi Jinping, a truce in the trade dispute between the U.S. and China has been struck, and additional tariffs raising the level to 25% will not be implemented on Jan. 1, as announced earlier this year.
However, the current status quo remains, and tariffs will still be 10%, according to a statement issued by the White House. China will also agree to purchase “a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product” from the U.S., the White House announced.

At the same time, last week a modernized version of NAFTA has been signed into law. Known as the United States-Mexico-Canada trade agreement (USMCA), it safeguards the core tenets of NAFTA while also representing a step toward preserving duty-free access to two critical foreign markets for U.S. meat and poultry.

Pork producers have gone hog wild over the news that the U.S. and China have struck a trade truce. Not only are there not going to be additional tariffs at the beginning of 2019, but China has agreed to purchase a substantial amount of U.S. products from a variety of industries in order to equalize the trade imbalance. Analysts believe a large chunk of these purchases could be made from pork producers.

Currently, China is facing a pig health crisis caused by African Swine Fever, which is forcing them to slaughter domestic pigs and import a good portion of their pork. As one of the world’s biggest markets for pork, it is only natural that they would reach out to one of the world’s biggest pork-producing nations: the United States.

Despite positive signals — the Wall Street Journal reports that Chinese pork prices are up 24% since May, whereas hog prices in the U.S. have been on the rise since mid-October in anticipation of increased demand — there are no signs that current tariffs will be removed any time soon.

China implemented a 25% retaliatory tariff on U.S. pork products on April 1, which remains. When broken down, that means about $8 of duties per animal, or $1.5 billion annually, Dermot Hayes, an economist at Iowa State University, told Meat + Poultry. So even though there are temporary improvements in the relationship between the U.S. and China, the truce doesn’t mean much for pork producers who were looking to rewind the situation.

Dan Halstrom, president of the U.S. Meat Export Federation (USMEF), told Meat + Poultry that the progress being made at the summit is encouraging, but there is still more work to be done.

“Global demand for U.S. red meat is very strong, but exports cannot reach their full potential until the retaliatory duties imposed by Mexico, China and Canada are removed,” he said.

Only a day after this truce was stuck, Trump took to Twitter and sowed confusion over his real intentions, tweeting, “I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.” This tweet sent stocks plummeting 3% on Monday and the bond market reacted, sending shivers through investors, according to The New York Times.

But China later broke its silence on the truce with a spokesman saying that the negotiations have a timeline and China plans to quickly work on the “agreed upon consensus.” And then on Wednesday morning, Trump tweeted that he believed Xi “meant every word of what he said at our long and hopefully historic meeting.” The agreement seems stable now, but this volatile negotiation environment means that there could still be change.

Although there are signs that tariffs might be lifted and put pork producers back in the black, the negative consequences of this trade war might be long lasting. Both farmers and the government have poured funds into keeping the industry afloat. In the U.S., pork was the largest beneficiary of a $1.2 billion federal buyback, with a planned purchase worth $558 million.

And pork isn’t the only industry that has to worry about these consequences. Dairy, nut and cherry farmers will be hard hit. The $977 million of U.S. fruit and nut exports are subjected to a 15% retaliatory tariff. With short shelf lives and a shrinking demand from one of the largest consumers of U.S. exports, there is much to lose if this dispute continues. It seems that as it stands, trade will only have a chance to recover if the tariffs are completely removed.