Shifting US policy adds uncertainty to global meat markets

19 July 2018

With the current whirlwind of trade policy changes and US instigated tariff impositions and subsequent retaliations, keeping up to date with what’s happening in the world of global trade can be a challenge. Moreover, how is Australian red meat being affected?

In order to answer this question, it is best to first look at the facts and timeline of what has unfolded:

  • In mid-March, the Section 232 of the Trade Expansion Act of 1962 investigation into US steel and aluminium imports recommended tariffs be placed on both commodities coming into the US. In addition, an exemption process was enunciated, by which Australia was able to receive permanent exemptions from US import tariffs. The steel and aluminium tariffs came into effect on 23 March 2018, though some countries received at least a temporary reprieve from this action.
  • In response to steel and aluminium tariffs, which remain in place for key US trading partners, both Mexico and China placed tariffs on US pork products. Mexico initially imposed a 10% tariff on US pork shoulders and legs in June, which increased to 20% on 5 July 2018. China slapped an additional 25% tariff on US pork, which commenced on 2 April 2018. There were no tariffs placed on US beef due to the steel and aluminium action.
  • Separately, a Section 301 of the Trade Act of 1974 investigation into China’s acts, policies and practices related to technology transfer, intellectual property and innovation was concluded at the end of March 2018. Additional import tariffs were announced by the US on a range of goods, the first of which was implemented on 6 July 2018. In response, China placed retaliatory tariffs on multiple US exports from 6 July 2018, including an additional 25% tariff on US beef and pork (hit with both tariff increases) imports.
  • Another Section 232 import policy review was announced by the US on automobiles at the end of May 2018. A report is expected in July 2018 and the Administration has already hinted at tariffs of 20% being placed on cars imported into the US.

Have these actions directly affected Australia’s beef and lamb trade?

At this stage, tariff schedule changes and interruptions to trade flows have not directly affected Australian beef and lamb exports to the US. While there have been suggestions of red meat import tariffs – based, in part, on protectionists seeking to take advantage of the current Administration’s approach to trade, particularly on US imported lamb – fortunately none of the suggestions have progressed.

Applied tariffs have affected US pork exports and have stymied the US beef export trade to China, which was in its infancy. Furthermore, China (including Hong Kong) is the world’s largest pork and beef import market, so any distortion to trade could also have unforeseen impacts in global meat markets.

US pork exports to China grind to a halt

A recent report from the US Meat Export Federation (USMEF) highlighted the potential cost of Chinese tariffs applied to US pork. USMEF point out that US exports of pork and pork offals to China and Hong Kong accounted for nearly 500,000 tonnes swt and were worth US$1.08 billion. USMEF have projected that the cost of prohibitively higher tariffs and reduced trade could cost the US pork industry $1.14 billion over the 12 months beginning May 2018.

More recently, the initial round of tariffs on imports of US pork appear to be taking affect. Steiner recently reported US exports to China in the four weeks ending 15 June averaged 75 tonnes swt per week and have since ground to a halt – in the same period last year pork exports averaged 2,100 tonnes swt per week. This decline in trade came about without the second 25% tariff hike being applied (this took affect from 6 July). At the same time, pork prices in China have been at their lowest for several years due to strong domestic production, causing a drop in imports from all supplier countries.

US pork exports to Mexico were more resilient after the initial round of tariffs, but have shown signs of slowing. Tariffs have added to the cost of doing business with a major export market and this is now impacting US pork prices, notably hams. A troublesome export environment for the US pork industry is unfolding at a time of record US pork production. While over 80% of US pork is consumed domestically, a key question to ask is just how more can the US consumer take and what does this mean beef?

US-China beef trade uncertainty

While the official volumes of US beef exports to China are small, constituting just 0.5% of China’s imports in the 12 months to March 2018, it is expected the fresh tariffs on beef will prompt a similar slowdown in trade.

China requires hormone-free beef – limiting much of traditionally produced US grainfed product – from an approved supply chain. While exports had grown, albeit to relatively small volumes, the additional cost from proposed tariffs will make the China market lass attractive and may halt further business investment in China-oriented supply chains. USMEF estimate the cost of the lost beef trade to China could exceed US$30 million over the 12 months beginning May 2018; but the potential losses from lost trade growth over coming years would be far greater.

There have been some opportunities open up indirectly from the shifting US approach to trade, particularly for Australian beef. Well before trade tensions and tariff impositions commenced, Mexico announced in early 2017 a temporary tariff elimination on beef imports of up to 200,000 tonnes from non-NAFTA countries. This tariff elimination was extended to December 2019 in the face of uncertainty in the trade environment, particularly under NAFTA negotiations with the US.

While there may be short-term opportunities for Australian red meat trade into key markets, in the medium to long term the current and potential disruptions to global trade flows will likely not benefit anyone, and have the potential to undo hard fought gains for liberalising global trade more broadly.

Article by Rob Williams, MLA International Business Manager – North America

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