China’s retaliatory tariffs on agricultural goods will squeeze farmers

As expected, China has launched its counteroffensive in the trade war. It has retaliated against U.S. tariffs, with additional levies on U.S. agricultural exports. For instance, Chinese buyers will pay a levy of 15% on U.S. chicken, wheat and corn, and 10% on soybeans, pork and fruit.

For agricultural products that are already on their way from the U.S. to China, nothing changes.

“Our understanding is that the product that’s already en route … that the additional duty would not be in effect for that product. That it would clear under the duties that were already in place,” said Joe Schuele with the U.S. Meat Export Federation.

But he said there is an immediate impact on the psychology of the market.

“Any time you inject additional costs or additional uncertainty, certainly suppliers have to look at … how much China will remain part of their sales, their export portfolio,” he said.

If you’re a U.S. producer of, say, corn or chickens and a buyer in China has already agreed to buy a certain amount from you at a certain price, what happens now depends on exactly what kind of deal you made.

“A lot of these contracts have clauses that are about unexpected trade policy changes,” said Jaya Wen, a professor of business and international economy at the Harvard Business School. “That will determine whether the buyer or the seller is paying the unexpected tariff or how they’re sharing that — is it 50/50, or 70/30?”

In the longer term, tariffs are likely to mean fewer exports, Wen said. And for some products, that will mean more supply on the domestic market.

“U.S. buyers of these goods are going to face relatively cheaper goods. But the problem is that U.S. demand is nowhere near large enough to compensate for the decline in Chinese demand,” she said.

Layer these tariffs on top of the others already affecting the agriculture industry, and, Wen said, the takeaway is that farmers will just make less money.