In 2018, China responded to President Donald Trump’s tariffs on $250 billion of United States imports by retaliating against $110 billion of U.S. exports. Almost all U.S. farm exports to China became subject to retaliation last year.
How have U.S. agricultural exports fared in the interim? At the Northwest Seaport Alliance (NWSA), encompassing the ports of Seattle and Tacoma, overall exports to China were down 32% in 2018 compared to 2017, and are down 21% in 2019, as of the end of March. These numbers are being driven by impacts on specific commodities, such as: soy exports—69% lower in 2018 than in 2017 (see sidebar on page 6); seafood exports—down 36%; dairy exports—down 41%; apple exports—down 26%; and exports of fresh cherries—down 33.4%.
Agricultural exports at NWSA had been growing for five years “until they took a wrong turn” last year, noted Tong Zhu, NWSA’s chief commercial officer. Allowing that a strong dollar contributed to suppressed export levels, she added: “I can’t be convinced that was driven mainly by currency rates.”
At the port of Oakland, another major agricultural exporting gateway, outbound cargo was also down in 2018, although it saw surprising upticks in March and April of this year. Could it be that Chinese importers were loading up on commodities in advance of a tariff hike much as U.S. importers did late last year?
Mike Zampa, the port spokesperson couldn’t say, but it is clear that the anomalous upticks did little to assuage concern over agricultural export volumes at a port where over 40% of all exports originate on America’s farms. “The broad assumption is that retaliatory tariffs will have a negative impact on the agricultural sector,” said Zampa. “We have been worried about this since the trade dispute arose and we really hope this thing gets resolved.”
The lag in ag has also had its impact on operations at ports which enjoy an unusual relative balance between imports and exports. “We have been shipping a lot of empties back to Asia,” said Zampa, noting that this has also been due to the surge of imports Oakland has seen over the last six months.
Zhu has heard anecdotally “about a lot more empties coming through our gateway to return to Asia.” “A rail partner told us they’ve been seeing ‘a flood of empties,’” she said.
The U.S. agricultural sector is particularly vulnerable to disruptions in international trading patterns, because, as Peter Friedmann, executive director of the Agriculture Transportation Coalition, explained, “nothing we produce in agriculture or in forest products can’t be sourced somewhere else in the world.” “And if we don’t deliver affordably and dependably,” he added, “our foreign customer will go elsewhere to buy.”
Ag Biz Redux
U.S. agricultural exporters have seen it all before. “When West Coast ports slowed down or shut down a couple of times in the last 20 years,” Friedmann said, “Japanese confectioners went to Turkey for almonds. There is no name brand on broccoli or a spear of asparagus. If Chinese importers can’t buy from us, they will find it elsewhere.”
That doesn’t mean U.S. ag producers won’t fight to keep their customers. They could reduce their prices to absorb some or all of the increases brought on by the tariffs—although, of course, that will negatively impact their profitability. It’s all about protecting their market share until the day comes—hopefully sooner rather than later—that the tariff brouhaha blows over.
That’s what Zhu thinks is going to happen. “Our exporters will not be willing to give up relationships and good customers that they have been cultivating for years,” she said. “At least in the short term, they might want to let it eat into their very thin profit margins.”
“Exporters can’t just give up because the customer may not come back,” agreed Friedmann.
Transportation carriers could help by working with shippers on rates during these trying times. Ocean carriers, in particular, understand what it means to fight for market share during times of doubtful profitability.
“We believe that ocean carriers and the railroads need to understand the economics of this tariff war,” said Friedmann. “They can’t be oblivious to what is going on with their customers, and it is in their interests to keep the cargo flowing, even if that means reducing freight rates so foreign customers can afford the products.”
Unfortunately, Friedmann has yet to see any evidence of that sort of understanding. “They have not been cooperative,” he said.
If the Trump administration’s List 4 goes into effect—which would slap tariffs on footwear, apparel, and consumer electronics—carriers may find that some cargo will not flow in the volumes they have come to expect. “Carriers should not be surprised when that happens,” Friedmann warned. “They should at least give themselves a chance by working with shippers.”
Exporters, for their part, are no doubt looking at alternative markets and Chinese importers are looking for alternative sourcing options. “But these relationships don’t happen overnight,” said Zhu. “It takes years to cultivate trust and to up the size of orders.
“I like to remain optimistic,” she added, “but I am concerned that a prolonged trade war could expedite the coming of a recession. All of us will feel the pain, and it will have a ripple effect that will go beyond the port and the alliance to exporters and, especially, consumers.”
