China's Alternative Retaliatory Efforts Hurting US Exporters

China is finding ways other than tariff increases to retaliate against U.S. exporters, further damaging the U.S.’s struggling agricultural export sector, panelists said during a Washington International Trade Association discussion on U.S.-China trade. The expected retaliation from China -- along with stalled trade negotiations and the increased difficulty of accessing China’s markets -- could lead to crippling, long-term consequences for some U.S. exporters, the panelists said.

China’s 2018 threat to take “qualitative” as well as “quantitative” measures against U.S. exports could be manifesting itself in increased inspections, difficulty in securing licenses and inexplicable delays, said Erin Ennis, the senior vice president of the U.S.-China Business Council, at the May 29 discussion. Although Ennis said it is unclear whether the increased delays and inspections are directly linked to China’s retaliation or whether they are simply a byproduct of China’s “difficult” business environment, she said China will continue to find innovative ways to retaliate for increasing U.S. tariffs on Chinese goods.

Beth Hughes, senior director of international affairs for the International Dairy Foods Association, said her member companies have experienced those retaliations first hand. “We have been hit across the board,” she said. “We have seen our sales dip dramatically.” Hughes said dairy companies' exports -- including products such as milk and yogurt with expiring shelf lives -- are “just being stuck at the port.”

Hughes said an oversupply of U.S. milk and retaliatory measures have gashed the export market to China -- the U.S.’s third-largest market for dairy. “It’s not an opportune time for the dairy industry,” she said. Hughes added that the Chinese market is relatively difficult to enter -- it took her member companies “a decade or more” to secure a foothold. “Our members tell us that once they're out of the market even a little bit ... they’re going to be out probably long term,” Hughes said. As a result, dairy farmers, companies and producers -- as well as other exporters in the U.S. agricultural sector -- are struggling with an existential question: Do they gamble on a swift end to the trade war and remain embedded in the China market? Or do they cut their losses and abandon the market altogether?

Hughes also said U.S. agricultural competitors -- namely European countries -- have capitalized on U.S. trade tensions with China, filling the void of U.S. dairy exports and stepping into the Chinese market, potentially taking the places of U.S. businesses. Hughes said China has welcomed the new exporters, and through early 2019 has increased its non-U.S. dairy imports. “They are definitely taking advantage of this trade dispute that we’re having with China. Once you get market share in China, it's yours forever,” she said. “We’re losing and losing to our biggest dairy competitors.”

In an effort to satiate the U.S. agriculture industry, the Trump administration on May 23 announced “up to $16 billion in trade mitigation programs,” a move that Hughes said was applauded by some but does little to solve the problem. “Trade mitigation is a nice Band-Aid maybe for now, but in the long term, it’s not going to keep farmers in business,” she said. “It’s not going to keep exports growing.” To survive, Hughes said exporters either need the China market or other new markets. “I think farmers would rather have the export market than get these after-the-fact payments,” she said.

Ennis said the possibility of a prolonged tariff battle is also causing U.S. exporters to consider moving plants or manufacturing bases to countries with preferential tariffs on exports to China. “If you’re making” a product “in the United States for export to China, you might be looking at moving your production to Mexico,” Ennis said. Ennis said she doesn’t see a quick resolution to the trade conflict, and both she and Hughes said they expect China’s June 1 tariff increase on U.S. exports to take effect. “We are telling companies to plan for that tariff list at the full 25 percent,” Ennis said. “It’s the only prudent way you can act.”