In 2018, China’s response to U.S. steel and aluminum tariffs was a 25 percent import tariff on fruit, nuts, wine, pork and many other products from the U.S. In retaliation, President Trump enacted a 10-percent tariff on $300 billion of additional goods from China to begin Sept. 1, which has now been delayed until Dec. 15. According to the Wall Street Journal, Chinese companies have generally stopped buying agricultural products from the U.S. in the most recent retaliation of the trade war. Examples of specific items impacted by the tariffs are below.
Pork and Beef
Pork (62 percent tariff) and beef (37 percent tariff) are suffering from the Chinese tariffs on U.S. exports. This could lead to more meat products in the domestic market and lower U.S. consumer prices. However, with lower demand from a global perspective, the pork and beef industry in the U.S. must adjust their supply and export strategy. As of August 2019, the U.S. has entered into a deal with the E.U. that will significantly increase beef exports to European countries.
Beer and Soda
Companies like Coca-Cola and MillerCoors have raised prices in response to aluminum tariffs that go into the cost of manufacturing the beverage cans. Of course, the rise in price is likely due to a variety of considerations but materials cost increase is a major factor. Both the beer and soft drink market is already struggling given that bottled water is fast eating into the market share of carbonated soda and other alcoholic drinks like hard seltzer and wine into the beer market.
Food Service Equipment
Regarding cost of equipment, many Chinese-made machines used in food service are set for tariff penalties, becoming 25 percent more expensive to purchase. This generally applies to large pieces of kitchen equipment, such as ovens, dishwashers and refrigerators, but there are thousands of other items made of steel and aluminum. Baking sheets, utensils, knives and carts are just a few of such items, as well as other appliances containing steel parts and internal components.
What is Next?
When market prices increase as demand increases/supply decreases, longer-term issues arise. If Chinese goods become more expensive, buyers will search for other sources and supply will dramatically impact the price of alternative food, beverage and equipment supply. In this sense, President Trump’s tariffs are a new tax on Americans, and we hope that the trade war and increased burden on American’s food, beverage and manufacturing industries end soon.
Could this trade war affect your business? Contacting a GHJ Food and Beverage or Tax Advisor can be your first step in finding out specific implications to your business.