Trade war impact on California’s exports concentrated in four commodities

Assistant professor Sandro Steinbach says China’s use of new supply chains is likely to hurt the state’s exports more significantly in the long term.

California’s wine, walnuts, oranges and table grapes were the export commodities most affected by tariffs imposed as part of the US-China trade war, according to a university analysis.

In an article published in the University of California’s Agricultural and Resource Economics update, professor Colin Carter and University of Connecticut assistant professor Sandro Steinbach analyzed how trade in seven agricultural products that trade primarily from California were impacted by retaliatory tariffs China placed on fruits, nuts and wine in 2018 and 2019.

By comparing Chinese imports before and after the tariffs were put in place, they found that while walnuts, wine, oranges and table grapes all saw decreases in both value and quantity (see table below), almond and pistachio exports were not reduced.

“Chinese consumers ended up paying higher prices for almonds and pistachios; nevertheless, imports of these tree nuts from the US remained steady because of the US position as the dominant global supplier,” Carter and Steinbach wrote.

Retaliatory tariffs reduced total agricultural exports to China by $14 billion per year, but the value of the seven agricultural commodities from California, when looked at collectively, actually increased from $439 million in 2016/17 to $706 million in 2018/19, according to Chinese trade statistics cited in the paper.

Steinbach told Agri Investor this demonstrates that while tariffs were customized to target political support for president Trump, booming Chinese demand for high-quality produce played a bigger role in determining how trade in any specific crop was affected.

“While the US actually did gain in terms of almonds and pistachios, at the same time, they would have gained a lot, lot more if the trade war wouldn’t have happened, considering that they would have kept their market share,” he said.

Steinbach said this is especially significant given the US has been losing agricultural market share in foreign markets, especially in China, since around 2010. Since the beginning of the trade war, Steinbach said, China has taken advantage of the opportunity to continue diversifying its agricultural supply chains and are unlikely to be reversed.

According to Steinbach, while an increase in soy and wheat imports from South America and Eastern Europe may be driving much of the near-term focus of the overall sector, investors in California agriculture should be more concerned by developments such as China’s growing  imports of pistachios from Iran and citrus from Egypt.

“In the Chinese markets, California table grape producers were actually pretty strong before the trade war,” he said. “Now they were basically killed and Chile and Peru moved in significantly – they just took over market share. Obviously, the concern is, from an economic perspective: how persistent is this problem? If supply chains adjust, they don’t go back.”