California agriculture could lose even if President Trump wins his trade war

Analysis & Commentary
By: Victor Martino

President Donald Trump’s trade war with America’s four leading trading partners — Canada, Mexico, China and the European Union — is heating up, which could soon be very bad news for California’s farmers, our agribusiness industry and the state’s economy as a whole.

All four trading partners have slapped retaliatory tariffs on billions of dollars worth of U.S. goods in response to Trump’s imposition of tariffs on steel and numerous other goods they export to America, putting a major focus on agricultural crops and products like almonds, pistachios, raisins, dairy, beef, wine and numerous others.

The tariffs are as high as 50% on some crops and food products produced in the U.S. and exported to these countries.

Thus far California farmers haven’t felt much pain. But those focused on growing crops like tree nuts and some others, along with the wine and dairy industries, should brace themselves for early fall, which is when the effects of the tariffs will start to be felt in a more obvious and real way by U.S. farmers and agribusiness.

It’s just not the reduction of exports that will hurt farmers’ pocketbooks. Because of this reduction in exports do to the high retaliatory tariffs imposed by our four leading trading partners, domestic supply (almonds, for example) will increase which will likely reduce the price farmers are paid because the tariffs will create excess supply here at home.

Professor Daniel Sumner of UC Davis is one of the best and most respected Agricultural Economists in the U.S. He says the full impact of the tariffs is unknown right now but they have the potential to significantly hurt California farmers.

Here’s what Professor Sumner said in a statement in late July about the tariffs and their potential effect:

“The general effect [of the tariffs] is reduced demand. And what that means is the products are going to get sold, but they’re going to get sold at lower prices.

Lower prices means less revenue, which in turn means they’re spending less.

All the way down, it ripples through the economy.”

For example, California tree nuts are a major China export (China is the second largest importer of the state’s almonds), and China has been increasing its imports of California wines.

“These tariffs, however, will be a setback,” says Sumner.

“You just spent five years convincing Shanghai to buy California wine, and now they say, ‘Come back to us later,’” he says.

The California Almond Board is mighty concerned about the tariffs too, as are nearly other group that represents farmers and the ag industry in California.

As an example, China has imposed a whopping 50% tariff on California-grown almonds and recently has mentioned it might even ratchet that percentage up higher.

To put this in perspective, this means a $3 package of California almonds will now cost Chinese consumers $4.50. This $1.50 difference could cause – Chinese consumers to find cheaper nut alternatives, growers in California to lose massive profits, and commodity brokers to do less business.

The California Almond Board and its members are calling for President Trump to end the trade war he started. They want him to focus on opening doors of opportunity for the California almond producer rather than closing them.

70% of all almonds grown in California are exported. China alone exports $500 million in California almonds annually.

California is the nation’s top agricultural exporter with more than $20 billion a year. The state as a whole as well as farmers and the ag industry has much to lose with these tariffs.

Former U.S. Agriculture Secretary Tom Vilsack, who now works to promote U.S dairy exports globally, recently argued in an op-ed piece in The Sacramento Bee that it “makes no sense to sacrifice the farm industry to feed Trump’s obsession with reducing the U.S. trade deficit.”

“If exports sneeze, California agriculture catches a cold, and the state economy takes a hit,” he wrote in the piece.

Vilsack is right. There are seldom if ever winners in a trade war. And unlike most past trade wars this one has the potential to do extremely serious damage because not only does it include China, which has only become a leading market for California ag exports over the last 15 years or so, but it also includes our most historically reliable and best three trading partners — Canada, Mexico and the European Union.

Nations need friends and reliable trading partners in our global economy.

The erosion of trust that might come from this trade war could take years or even decades to repair. The long-term consequences for California farmers could be extremely damaging.

President Trump needs to walk back his trade war rather than continuing to escalate it, which is something the U.S. Chamber of Commerce, every conservative free market organization in the U.S., and food, farm and agribusiness trade groups are advocating he do before it’s too late and serious economic damage is done.

California’s Republican legislators in Congress, particularly those from farm counties, also need to take a higher profile in condemning the trade war — and in ending it.

Much is at stake economically on the farm, in the packing houses, at the ports and in California farm region communities.

The president wants to win his trade war, yes. But winning at the cost of severely damaging California and U.S. agriculture is a hollow victory.

Almond farmers are set to harvest a record crop soon.

A whopping 70% of that crop is destined for export. Most of it normally goes to the four trading partners we now find ourselves in a trade war with.

With 50% tariffs on almonds from China and tariffs of lesser but significant percentages from the others, California’s almond growers and almond industry find themselves sitting on the sharp end of the almond shell.

Almond exports will be the canary in the coal mine in terms of an early indicator of the potential economic severity of the trade war for California agriculture.

Don’t expect the president to visit the Central Valley during almond harvest. And don’t expect an end to the trade war anytime soon despite the efforts by many, including agriculture, to convince President Trump to call it off.

By Victor Martino