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Tuesday, September 4, 2018

Trump’s Trade War Forces US Cherry Growers to “Dump” Their Crops on China

American cherry farmers, among many other farmers, are being forced to sell their crops below cost due to retaliatory tariffs.

From the staff editorial in yesterday’s Wall Street Journal Cherry-Picking Trade Losers: Pacific Northwest growers lost $86 million after retaliatory tariffs“):

In April China retaliated against Mr. Trump’s steel and aluminum tariffs by raising the tariff on U.S. cherries to 25% from 10%. American cherries are a luxury item, and affluent Chinese kept buying despite the price hike. But after the U.S. imposed a 25% tariff on an additional $50 billion of Chinese imports, Beijing raised the cherry tariff again—to 50% on July 6. That was too much even for China’s nouveau riche.

By then cherry growers in the Pacific Northwest had already spent the money to grow, harvest and pack their crop. Shelf life is short, and cherries can’t be stored like wheat. So growers are under pressure to sell at whatever price consumers will pay.

“Chinese importers were very forceful in accounting for the tariffs in their purchase price from us,” says Chris McCarthy, CEO of Auvil Fruit Company of Orondo, Washington. “Chinese consumers will spend only so much, so the Chinese importers say: ‘Option A is I buy nothing. Option B is you lower your prices to account for what I pay as a result of the tariff.’ We lose all negotiating power or leverage in that equation because you can’t just sit on the supply and hope they give in. Our products will rot. So we sell and try to recover as much of our upfront cost as we can, just to minimize the damages.”

On July 6 Chinese importers demanded Auvil Fruit Company sell Rainier cherries for $1.44 a pound less than they had paid the day before, Mr. McCarthy says. This summer Auvil lost more than $2.2 million in profit.

Many cherry farmers grow apples and pears, which are also subject to China’s 50% tariff. Mexico and India are among the biggest export markets for American apples, and both are taking retaliatory measures over the steel and aluminum tariffs. Mexico’s 20% penalty took effect in June, and India has a 25% tariff hike planned for Sept. 18, raising the total import tax to 75%.

“With farming in general, there’s a lot of stress because of things you can’t control, like weather,” Mr. McCarthy says. “This is something that’s very controllable by our government. Growers like Auvil aren’t going to be the beneficiaries of a trade war. But we’re paying a tremendous price.”

That message extends beyond the roughly 2,500 cherry growers in the Pacific Northwest. When the government picks industries to protect, it creates losers too.

It’s an important point that farmers, both for fruit crops like cherries and also for soybeans and pork, are especially at risk and vulnerable to Trump’s insane trade war because they have already spent the money to grow and harvest their crops and raise and feed their livestock, and many are now forced to sell their output at below their cost of production. It’s as if US farmers are being forced by Trump’s trade war to “dump” their products in China and other foreign markets at prices below their costs of production. And yet, don’t Team Trump and protectionists/scarcityists objects to “dumping” as one of China’s alleged unfair trade practices? Hmmm…

Reprinted from the American Enterprise Institute.

  • Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.