San Joaquin Farm Bureau Federation

By Craig W. Anderson

The current trade dispute between the United States and China is forcing producers and agricultural exporters to reassess the impact of new tariffs on their businesses.

"Talking to people in Washington, D.C. about trade, I found us to be on the same page," said SJFB President Jim Ferrari, who recently journeyed to the nation's capital as a member of San Joaquin County's One Voice delegation. "Negotiation tactics, give it a little time, now we're in the wait and see mode. If this situation's still ongoing at harvest, then we can worry."

The Chinese government put in place new tariffs on 128 U.S. products with a value of $3 billion that included nuts, fruit and wine to retaliate for the U.S. increasing tariffs on steel and aluminum imports in March.

"Discussions are ongoing and the impact here would be significant if the trade fight continues due to so many producing important to the county being impacted," said SJFB Executive Director Bruce Blodgett. "A long trade war could be devastating for SJC crops, especially those reliant in most part on exports."

He added, "It sometimes requires drastic action to get negotiations going but we in agriculture don't want to be the pawns in it."

"We're on the list of products with higher tariffs," said Dave Phippen, almond grower and partner in almond processer and packer Trevaille & Phippen, near Ripon. "The industry was already paying a 10 percent tariff on shelled and in-shell almonds and now it's back to 25 percent, a 15-percent increase." China has been purchasing less at 10 percent and will probably buy less almonds at 25 percent.

While the almond industry is no stranger to tariffs, the Chinese market is a large one, 150 million pounds imported annually – California's No. 3 almond export market – and "we don't want the blockage of this to last too long," Phippen said. "China could source their almonds from Australia which produces about 100 million pounds per year. This would open up a market for California almonds." Our almonds could replace Australia's in a number of marketplaces.

The Almond Board of California is building the Chinese market and this tariff squabble could slow China's growth potential. But if the trade discussion ends before August and September when almond harvest arrives, whatever damage that may have occurred could be minimal.

"This demonstrates that we must continue to expand the markets we ship to," said Phippen. "The almond crop is too large to be used entirely by the domestic market."

Return to TPP membership?
"We're very concerned as an industry and we don't want it to go on and on," Phippen said. "The Trump administration has indicated that the U.S. may want to return to the Trans-Pacific Partnership (TPP) and that would certainly help exports." Re-entering the multi-nation TPP would benefit San Joaquin County and the state's agriculture as a whole by opening more markets for their products and provide the U.S. some leverage with China, which isn't a TPP member but is making trade agreements with other TPP member nations. The U.S. rejoining the TPP "could force China's hand a little more and make them back off a little," said Josh Rolph, CFBF federal policy manager. He also said, "China could also react by being more aggressive."

TPP challenge
How China reacts either way could become moot if the U.S. can't get back into the TPP as it's currently organized. According to Sara Neagu-Reed, CFBF legislative associate, after the U.S. withdrew from the trade agreement in 2017, "the remaining 11 nations struck their own TPP deal and each country is now moving ahead with ratification. We'll have to wait and see where discussions go from here."

"The wine industry isn't sure of the impact yet," said Stuart Spencer, executive director of the Lodi Winegrape Commission. "But anything that makes wine more expensive isn't good." He said he'd heard of some wine deals "not happening because the increased tariffs with China. Tariffs and higher prices are definitely a detriment to demand. We want to be competitive with other wine producing countries and increasing tariffs reduces our ability to compete in China."

China's not primary wine importer
However, China isn't the California and Lodi wine industry's primary export market; Canada is No. 1, followed by the United Kingdom in second place and third place Northern Europe and they're not involved in a tariff tempest. Spencer pointed out that the United States remains the No. 1 wine market in the world.

Spencer said, "Despite wine being picked on because it's a year-round product and an easy target, there are many other markets in which Lodi wines can compete fairly and we'll continue to do so with the exception of China." U.S. ploy to get China to bargain?

Joe Valente, vineyard manager for Kautz Farms, said the trade battle could affect a lot of farmers but it "could be a bargaining thing to get China to the negotiating table. We want free and fair trade. There's been such an imbalance in trade between China and the U.S. that I think this challenge startled them. They're used to dealing with politicians not a businessman."

Experience in trade arguments is part of the export business and, said Ferrari, "This isn't the first time we've been through this sort of situation. This time, China knows they've been taking advantage of us for years and now, they realize things have changed with Trump."

He also said "the general consensus here [in Washington, D.C.] is that it [the trade dispute] will be a short-term situation."

Walnut exports to China have been declining precipitously, primarily due to the Chinese government wanting Chinese consumers to consume predominantly Chinese walnuts. "We could see something like this coming a few years ago when the Chinese said their domestic market had to buy a certain percentage of home-grown walnuts before purchasing imported nuts," said David Taylor, CEO and manager of the Anderson-Barngrover Ranch near Linden, which exports all of its walnut crop. "Export sales to China declined while walnut sales to Vietnam increased a good amount."

"A stable Indian market is on the way," Taylor said, adding that the China tariff trepidation "could be painful in the short term but helpful in the long term" by stabilizing the export marketplace.

Knock-offs knocked
"The pirating of goods and the marketing of knock-offs by China has to be reduced and eventually shut down," said Phil Brumley, almond grower and ag consultant. "The export industry is trying to get control of pirating in its realm." But in the meanwhile, he said agriculture and some technology areas will be the first and hardest hit in any trade war. "Our exports also suffer from a lot of product being smuggled into the Chinese market from other countries." "Trump called China's bluff on tariffs and trade. Now we'll see who blinks first and then we can make some headway," Brumley said. "The president is used to making deals and seeing a reaction. Politicians are usually incapable of making deals that are good for the U.S."

Comments from CFBF president
CFBF President Jamie Johansson summed up the situation by noting the new tariffs "have implications for both rural and urban citizens and communities. Agricultural trade creates jobs and opportunities throughout our state and farm goods are key exports from the ports of Oakland, Los Angeles, Long Beach and others. This situation will affect urban and rural Californians alike."

The California Farm Bureau Federation contributed to this story.

Port of Stockton ready for tariff strife
How will the tariff strife – whatever form it may take – affect the Port of Stockton? The transportation industry has no idea, according to Pete Grossgart, the port's marketing manager.

Clarity lacking
"So far there's really no clarity in the trade policy," Grossgart said. "We're seeing Chinese cement that's experiencing its first big tonnage drop in a product that's really picked up during 2014."

A cost of business
For those businesses dealing with export/import products that are affected by Washington's new trade policies regarding additional tariffs on certain products, the increase in tariffs is accepted as a cost of business matter. "Prices are adjusted as needed to absorb tariff increases. My concern is are projects so price sensitive that this situation will affect projects already in place?"

Employees could take a hit
Higher tariffs will affect cement volume and if the number of exports declines, including cement, a significant number of the Port's 5,500 employees that generate $180 million in salaries and benefits could take a large hit. "Any extended tariff battle would have a huge impact on the port's employment numbers," Grossgart said, adding, "Steel is the most labor intensive product at the port what with ship crews, the loading and unloading of the vessels, transportation from the port, etc. A trade disagreement would present a real challenge for all concerned."

Relationships threatened
Tariff strife also disrupts ongoing relationships developed by the port with a variety of businesses and, Grossgart explained, "This often forgotten or ignored aspect of the export/import industry is that years are devoted to developing trust and it could go away if, due to trade policies, our customers feel they can't trust us as they have in the past."

Steel industry alters policies
The export policies could also cause American steel industry to alter its perspective regarding investing in expansion and modernization of plants and facilities.

Steel down, rebar up
However, the port is experiencing some growth in rebar shipments. "As the Chinese rebar shipments to the U.S. slowed, an increase has been experienced in rebar from Turkey, Colombia, Brazil and other countries,"Grossgart explained. "Shipments from these countries increased dramatically."

Tremendous uncertainty
Overall, there is, he said, "tremendous uncertainty out there. The steel guys are saying 'I don't know" when asked about what they think will happen." During the great recession of the 2000's construction just stopped and steel shipments fell to zero tons. There is no consensus, Grossgart said, about what will happen with steel. "Steel shipments will slow to nearly a stop in June and July. Those who need steel will either stop work or get it elsewhere."

Diversification accomplished
"During the recession the decision was made to diversify and bring in other products," Grossgart said. "Our ag volume dropped from 2013's of 55 percent of all shipments coming from the ag sector, to 37.3 percent in 2017."

Wrong time for dispute
The tariff dispute came at just the wrong time for the port because shipments of ag fertilizer had increased from 700,000 tons in 2013 to 865,000 tons in 2017 and other ag-based products were expected to do well. Grossgart said, "At this point, all we can really be certain about is the uncertainty of the situation."