It might be ‘Born on the fourth of July’ in Hollywood, but it could be ‘dead from the sixth’ for the US fruit trade in China.
China’s 25 per cent retaliatory tariff on more than 500 US products, including a wide range of horticulture items, which came into force on Friday 6 July could shut out US fruit exports from the People’s Republic.
This latest tax – coming on top of a 15 per cent duty imposed on 2 April and pre-existing import levies of 10 per cent and above – could price US products like citrus and apples out of the market, traders believe. US cherries will take a huge hit, too. And if China also chooses to tighten quarantine rules at customs level, it could be game-over for all US fruit imports, fears Kurt Huang, managing director of Shanghai importer Fruitease.
In early July, prospects for US fruit in China looked bleak, since, while not fatal, the April tariffs had already badly hurt trade.
Shanghai-based importer Supafresh, for example, said April’s 15 per cent tariffs had subsequently made it difficult to sell Californian oranges, so it had slashed its volumes. As for US cherries, the import cost already in June was so much higher than the market price, Supafresh had simply dropped the line completely. “I don’t think importers are making any money from US cherries,” says purchasing manager Heidi Zhang, speaking on the eve of 6 July. “We are better off staying away [from them].”
Multinational importer T&G Global said in June that the April tariffs had impacted its China business, and the 25 per cent hike would undoubtedly make it worse.
“There is no doubting that potential tariff increases by China retaliating against the latest US tariff threats will have an impact on importers such as T&G who supply fresh produce from different countries including the US,” says Ignacio Smith, T&G Global’s China country manager, speaking in late June.
“My view is that Chinese consumers will not absorb the [25 per cent] tariff increase, which will slow demand, and ultimately either reduce total volumes or alternatively reduce value at some point in the value chain for US growers.”
US Pacific Northwest cherries will be one of the first products to face the impact of the 25 per cent tariff, since their season was ramping up in June.
Last year, China overtook Canada to become the leading export market for Northwest cherries, taking a record 2.98m cartons. With another record crop on its hands, the US-China trade conflict is a cause for concern for the cherry industry.
'The Northwest cherry industry cannot help but remain concerned with the tariff escalation in China,” says Northwest Cherry Growers president BJ Thurlby, speaking in early July. “To the credit of our grower's quality and willingness of our Chinese import partners, we have still been able to ship close to 700,000 boxes to China thus far. The newest tariff raises further concerns as we are now at 50 per cent (July 25 per cent + April 15 per cent + pre-existing 10 per cent), which has driven severe downward price pressure on what is proving to be high quality and highly demanded fruit. We hope that China will continue to be a player for our fruit for the remainder of the season.'
Pre-July, the Northwest pear sector had hoped to maintain a marginal presence on the Chinese market supplying premium varieties, despite the 15 per cent April retaliatory tariff. Those hopes have since been dashed.
“Now with another 25 per cent retaliatory tariff, USA Pears may be shut out of the market completely until this trade dispute is resolved,” says Jeff Correa of industry marketer Pear Bureau Northwest.
“Facing a total of 50 per cent in tariffs is likely going to be too high of an obstacle to overcome and it will give competitors in the market a distinct price advantage over USA Pears.”
Washington apples, too, now face a 50 per cent duty in China, their sixth largest export market. As a result, industry marketing body the Washington Apple Commission (WAC) expects reduced volumes to China if the trade dispute continues into the start of the export season in November-December.
“China is a high value market and will be very difficult to replace should current tariffs continue into the 2018/19 season,” WAC’s Todd Fryhover says, adding that Washington apples are also subject to new levies in key markets Mexico and India this year.
“Current tariffs from China, Mexico and India are affecting approximately 50 per cent of Washington’s export volume and this is very concerning looking ahead to the 2018/19 crop,” he adds. “Washington apple growers will be impacted by the trade disputes financially, but today it’s difficult to predict the value since the majority of new tariff implementation occurred after Washington’s primary export season.”
So, with the US pushed out of China’s fruit import picture for the immediate future, who will fill the supply gap left behind?
Countries that share the same export window as the US, such as Spain with citrus and Canada with cherries, will undoubtedly benefit, says Fruitease’s Huang, who anticipates that the US-China trade war will last for at least six months, if not longer. “Cherries from Turkey or Tajikistan unfortunately cannot take advantage of this situation due to the cold treatment quarantine requirements,” he adds.
Meanwhile, over in the US, the long-term implications of this escalating trade war on the country’s fruit export industry are hard to predict.
“It depends on how long the retaliatory tariffs remain in place and how much space this gives the competitors in the market to cultivate varietal awareness and preference with the Chinese consumers,” says Correa. “Hopefully, this issue will be resolved sooner rather than later, and the impacts are minimal.
“In general, the Pear Bureau and the US pear industry are pro-trade,” he adds. “And we would like to see all tariffs come down in order to compete on an equal playing field where the quality of the product is the number one consideration.”
Background
On 22 June, China threatened a 25 per cent tariff on US$50bn worth of goods, including major US fruit export categories, in response to US President Donald Trump's announcement on 16 June that the US would impose a 25 per cent tariff on US$50bn of imported Chinese goods as of 6 July.
After five rounds of proposing and implementing tariff threats, reports said US$34bn (or 545 export items) of the US$50bn worth of US goods would have the 25 per cent tariff implemented from July 6. They include agricultural products. This countermeasure closely mirrored Washington's, where the 25 per cent duties applied to 818 Chinese products worth US$34bn from 6 July.
