The dairy industry is pleading for an end to the U.S.-China trade war as the two sides prepare for yet another round of talks to de-escalate their seemingly endless trade spat.
China's Ministry of Commerce said Sept. 5 that U.S. and Chinese negotiators are slated to hold low-level talks in mid-September before ministerial-level talks in Washington in early October.
Now entering the 13th round of talks, U.S. and Chinese officials have been unable to bridge many of the lingering differences that have led to billions of dollars in tariffs.
Tom Vilsack, president and CEO of the U.S. Dairy Export Council and former agriculture secretary under President Barack Obama, told S&P Global Market Intelligence that his industry, like many U.S. export sectors, has not been spared in the crippling trade spat that has resulted in retaliatory tariffs on $185 billion of American goods.
China has targeted a bevy of U.S. dairy products with tariffs, including milk, cheese, yogurt and butter. And all of those measures have taken a precipitous toll on an industry that relies heavily on its ability to export freely.
The U.S. dairy export industry was headed toward record sales in China in the first five months of 2018 before the escalation of the trade spat, which led to a 45% decline in exports since, the group said.
Vilsack, a former Iowa governor, recently returned from a visit to China with U.S. Ambassador to China Terry Branstad where they met with officials from China's Ministry of Finance and Commerce.
"I think Chinese officials were surprised by the approach I took," said Vilsack, who spent Aug. 28-Sept. 3 in China and Japan to discuss trade and other issues with local officials. "That's the hope — that we're able to reinforce the importance of the relationship. But we obviously face some serious headwinds in China."
Deal pessimism
However, there is little optimism that officials can make solid headway in the October meetings.
Talks will continue for another year, and any agreement reached will likely be less than what Trump is demanding, according to Bill Reinsch, senior adviser and Scholl Chair in International Business at the Center for Strategic & International Studies in Washington. Trump has little impetus to make a deal now, as any snag in negotiations, including Chinese noncompliance, could be a liability affecting his chances for reelection in 2020, he said.
"[Trump's] problem is really how to drag things out until then, or how to get the Chinese to pull out so he can blame them," Reinsch said. "So, they're locked in an uncomfortable embrace for a good while."
Treasury Secretary Steven Mnuchin seemed to express optimism most recently, telling Fox Business Network on Sept. 9 that progress has been made on enforcement of a deal, an area of great concern to Washington.
"I think the enforcement area we at least have a conceptual, an agreement on," Mnuchin said. "We've made a lot of progress ... they're coming here. I take that as a sign of good faith, that they want to continue to negotiate."
Mnuchin's comments come after an August splurge of tariff measures by both sides.
On Aug. 1, the U.S. announced the Sept. 1 imposition of a 15% tariff on roughly $112 billion of Chinese imports, which included a host of previously exempt consumer goods such as apparel and footwear. Beijing responded swiftly by imposing its own steep retaliatory tariffs on $75 billion of U.S. exports
A second 15% tariff on about $160 billion of goods will go into effect Dec. 15 after a delay of more than two months that Trump said was necessary to ease the pain on holiday shoppers.
"We remain hopeful of a breakthrough during next month's high-level talks in Washington," Doug Barry, a spokesman for the US-China Business Council, said in an interview. "However, both sides have downplayed the likelihood of significant progress in bridging differences that have only grown larger since the last round of negotiations on Section 301 issues ended last May."
Dairy facing multiple issues in China
If the retaliatory tariffs were to remain in place, U.S. dairy farmers wold lose $12.2 billion by 2023, the U.S. Dairy Export Council estimated. On top of that, the council believes that China is a prime opportunity for increased business. Further, its reliance on imports of dairy over domestic production is expected to rise to 35% by 2023 from the current level of 32%.
U.S. dairy is also grappling with China's African Swine Fever crisis, which is ravaging its hog population, a consumer of many U.S. dairy ingredients, including dairy whey protein and permeate, Vilsack said. The head of the trade group said U.S. dairy products can literally, and figuratively, help rebuild China's hog industry more quickly.
"The swine fever has decimated the hog industry — the source of much of our ingredients sales in China," Vilsack said. "We hope to maintain and take full advantage of the relationship if and when the governments reach some resolution on the trade dispute."
