Why you should care
Importers of American pork are retaliating with their own tariffs, hurting states where Trump won in 2016.
The U.S. pork industry is squealing after its two biggest foreign markets imposed steep tariffs in retaliation for steel and aluminum duties from the Trump administration.
Mexico last week declared a 20 percent duty on imports of pork from the U.S., up from zero. China in April raised tariff rates on U.S. pork from 12 percent to 37 percent, putting the meat at a disadvantage in a global market. The duties target an industry with a strong presence in states that voted for President Donald Trump, including Iowa, Indiana and North Carolina. Before Mexico’s announcement, the government estimated the U.S. would export nearly a quarter of its 12.2 million metric tons of pork production this year.
Mexico has been the industry’s top customer by volume, taking delivery of more than 800,000 metric tons of hams and other cuts worth $1.5 billion last year. China bought almost half a million metric tons, according to the U.S. Meat Export Federation. Canada, whose prime minister, Justin Trudeau, received a blast of criticism from Trump earlier this month, is the U.S.’ fourth-largest pork export market.
It’s never a good time to have an assault on your industry, but when you’re down financially it’s worse.
Chris Hurt, agricultural economist, Purdue University
The new tariffs come as fortunes darken for the U.S. pork industry. Too many pigs are heading for slaughter after four years of herd expansion. Producers will lose $11 per head in 2018 and $14 per head in 2019, forecasts Chris Hurt, agricultural economist at Purdue University in Indiana.
“Obviously, any loss of demand from a Chinese or Mexican tariff would add to those losses,” Hurt says. “It’s never a good time to have an assault on your industry, but when you’re down financially it’s worse.”
A fall in sales would hit about 60,000 pig farmers as well as U.S. meat packers such as Tyson Foods, Seaboard and JBS of Brazil. “With the current volatility in trade relations, we’ve experienced day-to-day uncertainty in our ability to deliver products and services to customers,” a Tyson spokesperson says.
The Maschhoffs, an Illinois-based meat company, owns 2.7 million hogs raised on farms in the Midwest and sells them to packers. Chairman Ken Maschhoff says he supports Trump but his patience with deteriorating trade relations is wearing thin.
“At this point, pork producers really feel like they are on an island,” Maschhoff says. “We’ve had two major retaliatory tariffs for nothing that we did — these are countries that love our products. In both situations, our little dinky slice of the economic world is the one hit first and hardest.”
Mexico acted strategically by sparing imports of corn and soybeans from the tariffs, economists say, two feed ingredients for its domestic livestock and poultry industries.
It also declared a duty-free tariff-rate quota of 350,000 metric tons of pork in 2018 to avoid domestic inflation, according to a report by U.S. diplomats. While open to U.S. exporters, the quota has likely been filled already, says a Mexican government official. The White House has tried to boost agricultural exports, a rare industry where the country has a trade surplus. Argentina recently agreed to allow U.S. pork imports for the first time since 1992.
The new tariffs could knock back those efforts.
Speaking to Iowa farmers last week, Gregg Doud, chief agricultural negotiator for the U.S. Trade Representative, described the immediate outlook as “very, very difficult,” according to a Reuters report.
“Let’s be frank, the lead tip of the spear in all of this right now is your pork,” Doud said.
Chicago’s futures markets have been unfazed by the trade rhetoric. The price of lean hogs for December delivery has hovered around $0.60 per pound in the past month and barely moved on Mexico’s announcement.
Mexico has previously penalized pig farmers. In 2010 it placed tariffs on hams and pork skins to pressure the U.S. into allowing Mexican trucks to transport cargo across the border. The countries resolved the dispute in 2011.
Additional reporting by Jude Webber in Mexico City.
OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2019.