Possibly more important than products on the tariff lists, are what’s left off of them.
After a week of volatile markets driven by fears of a trade war, Chinese President Xi Jinping soothed traders with a vow of a “new phase” of opening China’s economy. In a speech Tuesday, Xi announced plans to lower tariffs for autos and other products, and enforce the legal intellectual property of foreign firms.
Trade war saber rattling hammered most agriculture markets last week. The Trump administration released its list of imports from China worth $50 billion on which it would impose 25% tariffs. China, in turn, threatened tariffs on $50 billion worth of U.S. products.
Market analysts, however, say what the U.S. and China have left off their tariff lists says as much as what’s on them. For instance, the U.S. would impose tariffs on flat-screen TVs, but not on clothes. China would impose tariffs on U.S. whiskey but not on beer.
For the U.S. beef industry, China has proposed a 25% tariff hike on fresh, chilled and frozen U.S. beef products. That would be on top of the 12% tariff already in place, and comes less than a year after the U.S. and China agreed to renew U.S. beef imports after a 13-year ban.
Possibly more important for cattlemen in the short term, however, is what China left off its list – hinds and offal.
China spends about $1 billion annually on U.S. animal hides to make shoes, car interiors and furniture upholstery. For comparison, the U.S. Meat Export Federation said beef exports to China in the second half of 2017 (when china lifted its ban) totaled 3,020 metric tons valued at $31 million. In other words, the Chinese hide market last year was 33 times greater than the beef they purchased.
Further, the trade war rhetoric has had little impact on U.S. hide and offal prices, says Sterling Marketing president John Nalivka. Yes, those prices are lower, but they’ve been on a downward trend since last September.
“The beef drop credit last week was the lowest since March 6, 2010,” Nalivka says. “That week the beef drop credit was at $133.75 per head.”
From 2010, the beef drop credit climbed to a peak of $232.32 per head in August of 2014, Nalivka says. Last week the beef drop credit calculated by Sterling Marketing was $145.78.
“Declines in the drop credit have been ongoing since last September,” Nalivka says. “The decline is a result of increasing cattle slaughter numbers, and hence, more hides available.”
Nalivka says the value of hides are roughly two-thirds of the drop credit value, and those prices are likely to see further declines as beef slaughter rates are projected to increase another 4% in 2018.
Still, the U.S. is the largest supplier of animal hides and skins to China’s $220 billion leather industry, and it’s unlikely the hide industry would become a tariff target.