China’s long-term growth as an importer of America’s fruits and nuts is at risk with new tariffs, according to a recent Rabobank report issued before China slapped retaliatory tariffs on U.S. fruits and nuts.
“Even if retaliatory tariffs are relatively short-lived, they can result in negative consequences that have a more lasting effect,” according to a report from Rabobank titled “If China Strikes Back.” The report was issued in March, just before China’s move April 2 put in place tariff increases of 15% for U.S. a wide range fruit and nuts in retaliation for the Trump administration’s import tariffs on steel and aluminum from China.
China represents 4% of U.S. fruit and tree nut exports and 2% of U.S. vegetable exports, including processed commodities, according to the March report, which uses 2017 export numbers.
“While fruit and tree nut exports to China generally represent a small percentage of total U.S. exports in this category, China is viewed as a critical growth market for demand expansion,” the report said. The compound annual growth rate for U.S. fruit and nut exports to China has been 18% since 2000, compared to an annual growth rate of 7% for the rest of the world in the same period.
“Any actions that limit the growth potential will pressure the U.S. horticultural sub-sector, especially those industries that have expanded permanent plantings in anticipation of Chinese market growth,” the report said.
With higher tariffs on U.S. commodities, Chinese importers will be motivated to create new relationships with suppliers in other countries, according to the report. Once those new trading relationships are established, the report said it will be difficult for U.S. suppliers to get lost business back.
The Rabobank report said about 10% of U.S. production of macadamia nuts, apricots and cherries is exported to China. Other commodities that rely on China’s demand for between 1% and 4% of U.S. output include plums, raisins, oranges, walnuts, pistachios, pecans, frozen strawberries, grapes, almonds, pears and apples.
Short-term effects of the tariff, according to the report, will be more product for the domestic market to absorb. That could result in lower U.S. prices, the report said.
The Rabobank report also looked at trade impacts from Chinese potential tariffs on U.S. pork, wine and soybeans.