Although President Donald Trump announced an extension of the Mar. 1 deadline for the ceasefire in tariff increases between the US and China, Washington exporters are still reeling from the first round of blows. Another round of tariff increases could be a knockout blow to Washington’s largest employer – agriculture.
“From cherry growers in the Yakima Valley to cargo handlers at the Port of Olympia, hundreds of employers in Washington state are anxious to see a successful resolution to the trade negotiations with China,” said Lori Otto Punke, president of the Washington Council on International Trade.
A ceasefire on tariff increases was called in December to allow for negotiations, but that is scheduled to end on Mar. 1. On Sunday, President Trump extended the deadline due to “very productive talks” with China.
Beginning in 2017, the president took on China to push back on what he sees as unfair trade practices limiting US steel and aluminum, undercutting manufacturing and violating intellectual property laws. This push for more balanced trade policies may blow back the hardest in Washington, one of the most trade-dependent states in the nation.
Washington accounts for 5 percent of US exports to the world but more than 14 percent of its exports to China. More than 61 different agriculture products in Washington are currently subject to retaliatory tariffs, affecting about $2.7 billion worth of Washington exports in 2017 numbers. An estimated 28,700 jobs were supported by these products.
Impacts for 2018 could be worse once tallied and if the trade war continues to escalate, 2019 could permanently inflict damage on some of Washington’s largest exports.
In 2017, China was the largest market for Washington cherries, with the US shipping more than 34 percent of its more than 173 million pounds of cherry exports to China. More than 83 percent of those exports are grown in the Pacific Northwest.
After a second increase in tariffs in 2018, the market for US cherries in China nearly closed by the end of the season. If the tariffs continue, the China market is expected to be completely closed in 2019.
On top of the reduced sales volume, growers also lose access to the premium fruit market provided by Chinese buyers more willing to pay higher prices for larger fruit.
“The premium that the grower would have received, disappeared,” said Mark Powers, president of the Northwest Horticultural Council.
Washington’s seafood, apple, potato and hay export markets are also taking some of the heaviest damage. China is Washington’s second-largest market for seafood, with over $154 million in exports in 2017. Retaliatory tariffs begun in July cut exports by 40 percent.
Apples are on the receiving end of retaliatory tariffs from China and Mexico while India is threatening one, a combined $239 million export market. Exports to China are down 67 percent. India is down 87 percent.
With shipping times to these global buyers between 35 and 40 days, the uncertainty of the outcome of trade negotiations leaves growers with a high level of uncertainty, leading some to postpone investments, upgrades and equipment purchases.
These impacts affect the rural communities that support the growers as well as the trucking, shipping and logistics businesses that depend on a stable trade environment.
“We compete globally,” said Powers. “The commercial reality of being a reliable provider of quality products means that this introduces uncertainty that starts to affect the business climate.”
The Washington potato industry also expects long-term damage from the trade war. While the direct loss from retaliatory tariffs from both Mexico and China totals $121 million so far, the European Union (EU) has been targeting Mexico for potato exports and long-term contracts with international competitors have already been put in place.
Exacerbating these lost long-term contracts is the CPTPP, formerly TPP, which the US withdrew from in 2017. Top potato competitors such as Canada, New Zealand and Australia now have preferential access to all the markets that are signatories to the agreement, most importantly Japan and Vietnam.
Additional free trade agreements between the EU, Japan and Vietnam could slash US sales to these countries, while renegotiation of NAFTA could threaten our second-largest market for potatoes and cherries: Canada.
If the trade war continues, the potato industry is estimating damages in direct losses and lost sales of $731 million.
“We need a solution on all the fronts sooner than later,” said Powers.
Retaliation from China comes at a bad time for Washington’s dairy farmers as they also face tariffs from Mexico while milk production in the EU has rapidly increased and US production is at an all-time high, driving prices down into barely sustainable levels.
“We’re not getting enough every month to pay the bills,” said Jason Vander Kooy, owner of Harmony Dairy in Mount Vernon. “I still love farming, but it puts a burden on your shoulders.”
China had served as a much-needed buyer for powdered milk, but now those potential exports end up in storage, waiting for a buyer.
Overall, Washington’s exports continued to grow this year, continuing a multi-year trend, but exports to our largest trade markets in China, Canada and the EU slowed or dropped after tariffs went into effect in June.
“China’s hurting worse than we are,” said Vander Kooy. “At the end of the day, it’s going to turn out as a good result, it just comes at a bad time.”
Without an agreement to end the trade war, Washington’s farming, processing, shipping and logistics employers face an uncertain future as losses pile up.