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Little change seen in ‘new approach’ on China trade

Issue Date: October 13, 2021
By Ching Lee

California agricultural exporters looking for improved U.S.-China trade relations—and lifting of Chinese retaliatory tariffs on farm goods they hope to sell to the Asian market giant—may need to hang tight.

Some farm groups welcomed remarks last week by U.S. Trade Representative Ambassador Katherine Tai on the Biden administration's "new approach" to the U.S.-China relationship.

Tai said she plans to discuss with China its commitments under last year's U.S.-China Phase 1 trade agreement, though offered few details.

"We will use the full range of tools we have and develop new tools as needed to defend American economic interests from harmful policies and practices," she said.

"She very carefully said nothing," said Dan Sumner, an agricultural economist at the University of California, Davis.

He said he took Tai's comments to mean there would be no significant changes from how the administration has approached trade policy during the past nine months, "which was no change from Trump."

The Phase 1 deal slowed an escalating U.S.-China trade war that began in 2018, when the Trump administration began imposing tariffs on China over what the U.S. characterized as unfair trading practices. China retaliated with its own tariffs that targeted nearly all farm imports from the U.S., including California agricultural products such as nuts, fruit and wine.

Under the agreement, China pledged to buy at least $40 billion of U.S. food and agricultural products annually. But retaliatory tariffs remain in place. And Sumner said Tai's remarks signal that the Biden administration won't immediately reverse course on Trump's approach to China.

"It is sad that the administration has missed a real opportunity to reset agricultural trade policy and other trade policy," Sumner said.

Caroline Stringer, trade director for the California Fresh Fruit Association, said Tai's remarks acknowledged that not all U.S. agricultural commodities have benefited from the Phase 1 agreement.

"What we saw after the first year was that China didn't live up to its commitment completely," she said.

She noted that China may have bought more U.S. row crops such as corn and soybeans but not specialty crops.

California stone fruit continues to face higher tariffs and competes with China's own fruit and produce from countries that have lower or no tariffs, Stringer said. Though the Phase 1 deal granted California nectarines market access last year, the remaining retaliatory tariffs and lack of consumer demand due to a slowing economy resulted in lower-than-expected export volumes, she said.

The Phase 1 agreement also granted market access to U.S. blueberries. But that access came with a standard tariff of 30%, plus another 45% retaliatory tariff.

Elizabeth Carranza, director of trade for the California Blueberry Commission, said shippers here have so far not sold any berries to China. U.S. exporters may apply for a waiver from the Chinese government that reduces total tariffs to 45%. But they would still be competing with producers from Argentina, Canada and Mexico that have a 30% tariff, and suppliers from Chile and Peru that are not subject to any tariffs.

"It's not a level playing field," she said.

Stringer said she wasn't too concerned that Tai's speech was light on specifics, as she did not expect the trade ambassador to reveal details before negotiations begin. But she said it was good to hear recognition that issues with China remain and that more work needs to be done.

Because this work will take time, Stringer said Biden administration officials have stressed the importance of developing other markets, which she said she took to mean "don't put all your eggs in one basket."

Stringer said the association continues to press the U.S. Department of Agriculture to expedite negotiations to gain market access for California stone fruit in South Korea and Vietnam, and to remove remaining phytosanitary barriers to Japan.

Despite retaliatory duties, transportation disruptions and other challenges related to the pandemic, California almond shippers managed another record year of exports in 2020.

Keith Schneller, trade policy specialist for the Almond Board of California, said because China established an exclusion process for some of its retaliatory tariffs, direct shipments to mainland China are actually on the rise, though overall shipments to Hong Kong have fallen.

Schneller said he was encouraged to hear Tai lay out her plans to resume dialogue with China about its commitments under the Phase 1 agreement, which could return tariffs to pre-trade war levels.

Though China may not hit its purchase targets under the deal by the end of the year, he said U.S. agricultural exports to the country this year will still reach record levels. The total is expected to exceed $37 billion, according to USDA forecasts.

"As part of the Phase 1 agreement, we're hoping to have full market access in China in the coming months for almond hulls to be used as livestock feed," Schneller said.

Meanwhile, the industry continues to look for other market opportunities around the globe, he noted, with India now taking record shipments and becoming the top export destination for California almonds. The nut has also become the No. 2 U.S. agricultural export to the European Union, behind soybeans.

For California rice, breaking into the Chinese market has been a long-term process, said Jim Morris of the California Rice Commission. China opened its market to U.S. rice in 2017 after reaching an agreement on a long-stalled phytosanitary protocol. But to date, only two commercial U.S. shipments of rice have been sold there.

The first came from California and was delivered last fall. An Arkansas company made the second sale this past summer, according to the U.S. Rice Federation.

Sumner said the Biden administration probably won't pursue any new trade agreements. But the U.S. could still join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, formerly known as the Trans-Pacific Partnership. Trump withdrew from the TPP in 2017.

"TPP is definitely still available," Sumner said. "It would have been much better to participate in the negotiation, but now just join."

Schneller said now that the United Kingdom, China, Taiwan and Hong Kong have recently applied to join the CPTPP, the administration has indicated its willingness to consider joining the 11-nation trade pact if its labor and environmental standards can be updated.

Sumner said "a big miss" has been with U.S. engagement at the World Trade Organization, through which the U.S. could use the collective effort of member countries to pressure China and others. He called U.S. failure to nominate or express willingness to support a candidate for its appellate body "a serious mistake," as it leaves the WTO as "a court with no judge or jury."

"For California agriculture," he said, "having an effective WTO is really important to hold governments to their promises to have markets open."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.




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