A U.S.-China trade war would cost California farmers

A U.S.-China trade war would cost California farmers

Loss of China's preferred trade status could hurt crop, dairy and livestock exports

The Biden administration recently announced large, increased tariff rates for Chinese electric vehicles, solar cells, semiconductors, and aluminum and steel products. This raises the possibility of another trade war with China that could impact agriculture. 

Economists from UC Davis and North Dakota State University evaluated the potential implications of the U.S. revoking China's Permanent Normal Trade Relations (PNTR) status. They found that if China retaliated against a change in China's PNTR status, it could lead to a 9.5% increase in China's agricultural import tariffs, resulting in potential trade losses to California agriculture of around $1 billion annually.

California agriculture was hit hard by the 2018-19 trade war with China, and many industries have still not recovered from its effects. Despite this, there is increasing support in Congress for further restrictions on trade with China, with proponents asserting that China is not complying with the World Trade Organization's regulations.

The authors' research suggests that some product groups – such as horticultural products, dairy, livestock and meats – would likely experience even steeper than average increases in import tariffs.

“The impact on import tariffs for non-agricultural sectors would be even larger, with the average import tariff going up from 3.9% to 32.5%,” said co-author of the study Colin A. Carter, Distinguished Professor in the Department of Agricultural and Resource Economics at UC Davis. 

For all California agricultural exports, they estimated an average decline in export value between 28.4% and 34.8% when comparing a scenario where China's PNTR status is revoked to one where it is not. This translates into an estimated trade loss of between $800 million and $1 billion, using 2023 California agricultural exports. Some crops that rely heavily on China for exports, such as tree nuts, would be more severely impacted by these effects, particularly considering that some of them are still subjected to residual tariffs from the 2018-19 trade war.

The last trade war between the United States and China led to significant decreases in crop prices and lost export opportunities. As co-author Sandro Steinbach, Associate Professor in the Department of Agribusiness and Applied Economics and the Director of the Center for Agricultural Policy and Trade Studies at North Dakota State University notes, “Once access to a market is lost, gaining it back is difficult, as the 2018-19 trade war has shown.” 

To learn more about the potential implications of the United States revoking China's preferred trade status, read the full article by Carter and Steinbach: “Revoking China's Preferred Trade Status Would Be Costly for California Agriculture,” ARE Update 27(4): 1–4. UC Giannini Foundation of Agricultural Economics, online at https://giannini.ucop.edu/filer/file/1715033514/20982/.

ARE Update is a bimonthly magazine published by the Giannini Foundation of Agricultural Economics to educate policymakers and agribusiness professionals about new research or analysis of important topics in agricultural and resource economics. Articles are written by Giannini Foundation members, including University of California faculty and Cooperative Extension specialists in agricultural and resource economics, and university graduate students. Learn more about the Giannini Foundation and its publications at https://giannini.ucop.edu/.