Have you been watching the news lately? Spoken to anyone involved in international trade? It has been a crazy week for trade. Between the latest news of the US & China trade negotiations and the NAFTA. There is a lot going on, with no signals of slowing down. Regularly, most news features talk of the state of international trade and mention a looming trade war.
International Trade Constantly in the Headlines
With the constant bombardment of news in 2018, you may find yourself shell shocked and wondering do I need to worry about the negotiations and agreements being made? Is a trade war starting? What will the impact of these proposed tariffs be short and long term? Short answer is yes, this will impact us all and there is cause for concern.
Today’s world economy is more intertwined than ever before whether it is food, technology or miscellaneous goods. There is not simple fix or change to boost a certain industry or nation’s market. Our global market today is like a very complicated game of Jenga where balance is key. One seemingly insignificant change regarding one industry or nation can cause a major upheaval elsewhere.
President Trump appears to be in no rush to end the slowly escalating “Trade War with China.” It appears Trump believes his massive disruption of the global economy will rebalance trade relations in favor for the U.S.A.
International Trade Practices Across the Globe
This is the exact opposite approach the majority of the modern world has regarding international trade. Many leaders are working to further strengthen trade relations and grow harmony between different nations for the benefit all parties involved. Stabilizing and strengthening the intricately intertwined Jenga tower of the global economy made with careful small steps.
Across the globe, people are bracing themselves as the two largest economies battle. Experts are predicting the Trade War between the United States and China will get worse before it gets better. These predictions do not seem logical after recently hearing from both nations trade negotiation teams. Intense gamesmanship and “saving face” seem to be the essence of the state of international trade recently more than ever before.
Reuters summarizes the results of the latest trade talks between the two nations perfectly. “U.S-China trade talks this week were heavy on details but short on progress as U.S. negotiators outlined cases of American firms harmed by Chinese practices and China argued it was meeting its WTO obligations, people familiar with contents of the discussions said.”
The State of International Trade + American Agriculture
Bringing this back to the local picture, what does this mean for you? There are choppy seas ahead as this storm continues. One industry most drastically affected by this trade war is our American agriculture.
Our Ag industry from coast to coast are taking tremendous hits. China continues to retaliate by targeting many segments of our Agriculture industry to the Trump administrations’ Chinese tariffs.
It is estimated that 1/3 of America’s agriculture is grown and processed exclusively for export. Industry experts estimate 1 out of every 10 acres of farmland in the United State is dedicated to producing agriculture goods for export to either Canada & Mexico. Many of the farmers and companies may be able to temporarily weather these targeted hits but it is unclear what the long term consequences will be for all those involved.
Other Nations Respond in Kind to Tariff Tactics
One of the agricultural products China singled out in tariffs during their retaliation has been American wine.
Earlier this spring, China raised the tariff on wines imported from the U.S. 15%, bringing the total to 48.2% – 66% on all imported American wines as shared by the Wine Institute. This is a very tough blow. American wine faces steep competition from other wine regions around the world such as Australia, France and Argentina.
Many American wine groups, advocates and individuals have worked to open and educate the Chinese cultivate market successfully. However, there is steep competition for the vast Chinese wine consumer market as in 2019 some of the biggest competitor will now enjoy tariff-free wine trade with China. Creating a large barrier to American viticulture success in the Chinese market.
Surprisingly, wine is not the only product punished by the wine tariffs. Another great American product cider falls under wine regulations for production and international trade. In order to make cider, the producer must be a licensed winery. Simply, this means that cider is also classified as a wine and grouped into wine tariffs. So, this hurts yet another growing American industry.
Will These Trade Ripples Dissipate or Grow to Waves?
Perhaps China wisely selected their tariff impacted goods strategically. The crops and products they selected are very much American with strong political voices. China is wisely employing the voices of the American voices to add pressure on the Trump administration.
Still these tariffs go beyond affecting simply the goods singled out. Yes, wine and cider are impacted along with their supply chain, labor force and distribution channels. When the main industry is crippled like this, the ripples impact many more people. These ripples will eventually impact local markets and create regional challenges should this path of escalating this trade war continue.
Many international hesitate to agree to purchase American goods. Will their nation be casually mentioned in a speech or tweet changing the entire market overnight? The situation may be fine now, but what if this were to change mid shipment? For a sudden and large tariff to take effect prior to the shipment making it to port could be financially catastrophic to all parties involved. America is becoming an unreliable trading partner or unnecessary trading risk.
Just last month, I spoke with folks involved in soybeans, who were severely impacted by this very type of incident. As the ship left America no tariffs had been mentioned. Upon arrival at the destination port in China, if the purchasing company accepted the shipment the newly announced import tariff bill would total an additional $7 million dollars. Understandably, they walked away from the deal. Leaving the soybeans on a ship on the other side of the world without a buyer. Who lost? The American farmers that had negotiated the deal in good faith and grown quality soybeans for shipment.
Increasing tariffs and growing uncertainty have many are looking to hold off on importing U.S. goods and discussing future deals. For CKJY Exports this trade war has created rough seas for our international partnerships and our prospects for international sales.
Sadly this has extended beyond wine, to craft beer and distilled spirits due to fears of tariff expansion. All our concerns grow following the latest round of trade talks between China and the U.S. It is obvious to everyone involved in either importing or exporting these concerns are not unfounded. Even our trading partners outside of China express concern over the possibility of a rash tweet messing up a shipment already under way.
What of the Future of International Trade?
Despite everything we see in the news, our team holds a positive outlook. People are the most important part of business – especially in overseas trade. Most of our friends feel that all this “trade war” talk is only a temporary bump in the road. It is encouraging to speak with different international counterparts and have them express their belief that this will soon dissipate.
As most of us know we have much more in-common with our international friends and trading partners than what separates us. We share a strong hope that we will soon return to building stronger and deeper relations between the nations and creating a more prosperous trading relationship for all of us.
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