American seafood exports have escaped the wrath of China’s Commerce Ministry – for now.
On Monday, 2 April, China published a list of 128 items that will face tariffs of 15 to 25 percent in retaliation at the administration of U.S. President Donald Trump levying similar tariffs on Chinese goods to combat what it claims are unfair trade practices by China.
Fruits, nuts, and pork products – many of which come from Trump-voting states – are included in the Chinese tariffs. Many of China’s retaliatory tariffs target products in which the U.S. is but one of many suppliers. American pork suppliers, for instance, have for some time been trailing European suppliers in the Chinese import trade, while Southeast Asia and Australia are key suppliers of the fruits selected for Chinese trade taxes.
But big-ticket agricultural items like soybeans are notable absences on the list of 128 products targeted. American crops such as soy – as well as maize and distillers’ grains – have become essential inputs into Chinese animal and fish-feed mixes, even while China courts other suppliers in South America. Cutting those off through higher tariffs would cause a spike in feed prices, with a probable impact on prices for Chinese staples, something which the inflation-averse Chinese government won’t tolerate.
In contrast to pork or grain, seafood is a product in which America has unique advantages and leverage in the context of Chinese trade. American products like lobster and shellfish are premium items for Chinese consumers, while American whitefish is a key input for Chinese processors. China has numerous large-sized suppliers of food categories like grains, fruit, wine and soy. But not so in seafood. Besides the U.S., Russia is the only other supplier capable of supplying the quantity of seafood that China requires. While the ASEAN bloc is a lead supplier of shrimp and tropical fish to China, no one country comes close to the overall volumes of seafood that the U.S. sends to Chinese seafood buyers. Shipments from Canada were less than one-third of the U.S. volumes last year, though some Canadian product is transshipped through the U.S. Meanwhile, Russia has stated its intention of shift to preserving for itself a larger share of the value chain from its seafood, rather than shipping it in unprocessed bulk to China.
In addition, it’s much cheaper to produce most food items in the U.S. than it is in China, where land is expensive and scarce, water is polluted, and labor competiveness – which gave China such an edge in aquaculture – is rapidly being eroded. And keeping its options open on seafood supplies is also vital to allow China achieve its stated goal of ending the chronic overfishing that has emptied domestic waters. Chinese fisheries officials have stated they want domestic aquaculture to focus less on quantity and more on quality.
Finally, Chinese processing jobs and import earnings are at stake, given the U.S. is the key export market in many categories. And while Chinese seafood industry representatives have been making a big to-do about emerging new markets like Africa and the Middle East, even all these new markets combined can’t match the buying power of the American market alone.
America has a major trade deficit with China, in part because of the huge amount of seafood China takes in export for contract processing and re-export, but this has been narrowing as American firms supply larger amounts of high-end seafood items. However, China’s insatiable demand for grain, oilseeds, and high-end seafood put food and agriculture on the very short list of sectors in which America enjoys a trade surplus with China. Any grand bargain between Beijing and Washington should see openings for American food exports (as well as financial services, a sector closely guarded by Beijing which has the potential to seriously reduce the trade deficit which so annoys the Trump administration).
Beijing has, over the years, been adroit at playing numerous supplier-nations off against each other, seeking quid-pro-quo trade wins while creating ample supply for Chinese consumers and helping government to manage food-price inflation. In that sense, China likely hold off on implementing any tariffs on seafood, as any significant new import duties on American seafood imports could imperil Chinese processors while also sending an inflationary shock through to Chinese consumers – not to mention the impact retaliatory U.S. duties would have on Chinese tilapia exporters.
For all these reasons, China will be keeping its seafood supply options open and will be reluctant to put punitive taxes on U.S. seafood until a trade war gets much more intense. In the long-run, seafood is a product category which stands to gain in the eventual settlement of a Sino-American trade war. But for now seafood looks safe in the growing Sino-U.S. trade war, though President Trump’s noted unpredictability is a wild card that can never entirely be written off.
