WCMA Notes: Tariff War Learnings from 2018-2019

With the approach of a new Trump Administration in Washington, dairy leaders and analysts are intently watching issues and opportunities – and cabinet secretary picks. Tax and regulatory policies may offer opportunities for dairy businesses, while Trump’s promised immigration crackdown and 10-25 percent tariff hikes on trading partners can create business uncertainty.  

The global trade and tariff battles of 2018 and 2019 offer tangible data that can, to a degree, reduce uncertainty.  Focusing on China, in particular, is relevant: the first Trump Administration, then the Biden Administration, supported tariffs on China, and more tariffs – and retaliation from China – may be on the way soon.   

The highest-volume U.S. dairy products moving to China are categorized as low-protein whey (including dried sweet whey, WPC 34 and whey permeate) and lactose powder, and in the summer of 2018, an all-out tariff war between the U.S. and China hit these key dairy products, with China setting retaliatory tariffs at 27 percent on low-protein whey products and 15 percent on U.S. lactose.  

By 2019, these Chinese tariffs began to bite. Worldwide whey exports from the U.S. dipped considerably – down 18 percent – driven by lost sales to China.  In 2017, before the trade war, nearly half of U.S. whey exports (48 percent) moved to China. By 2019, whey exports to China had fallen 60 percent compared to 2017 and were just 24 percent of U.S. global whey exports.   

Notably, by 2021 whey exports to China recovered to five percent higher than 2017 and were again about half of all U.S. whey exports.  

 Lactose fared better in this trade war. Worldwide lactose exports from the U.S. were relatively stable at -4 percent in 2019, with record buys from Southeast Asia and Mexico offsetting a massive 42 percent drop in Chinese imports of American lactose.  

Like 2018 and 2019, a new round of higher tariffs and retaliation in 2025 will impact every type of American business and dairy will need powerful advocacy to be heard over the din. In July 2018, the U.S. kicked off the trade war, imposing tariffs on steel and aluminum imports from major trading partners and separately placing a 25 percent tariff on a broad range of imports from China.   

That same month, China responded to the U.S. action by imposing retaliatory tariff increases ranging from 5 to 25 percent on agricultural products worth $22.5 billion. Most notably, China lifted whey tariffs from 2 percent to 27 percent and tariffs on U.S.  cheese jumped from 8 percent to 33 percent.   

Two months later, in September 2018, the U.S. volleyed back with 10 percent tariffs on even more Chinese goods, and China added retaliatory tariffs on more U.S dairy products. This time, China targeted higher tariffs on U.S. lactose (up to 15 percent) and infant formula (up to 15 percent).  

In January 2020, U.S. Dairy Export Council (USDEC) had tallied the losses: “Over the 12-month period spanning December 2018 – November 2019, U.S. dairy exports to China totaled $377 million in sales. However, retaliatory tariffs on U.S. dairy products steeply disadvantaged the U.S. industry compared to its competitors and contributed to a 47% decline in U.S. exports to China over that same period.”    

A look back at the impacts of China’s retaliatory tariffs is complicated by the simultaneous onset of African Swine Fever (ASF) in China. In September 2019, USDEC analyst Al Levitt wrote: “China's pig herd is down about one-third from a year ago, according to the Chinese government. Outside analysts have suggested that number is most likely too low, and that the ASF toll will get worse before it gets better. Swine fever and retaliatory tariffs have imposed a double whammy on U.S. whey exports."   

With ASF raging in China and a higher-than-ever tariff barrier, China’s whey imports from the U.S. declined by about 10,000 metric tons a month in 2019, Levitt added.  

President Trump authorized the Market Facilitation Program to make payments to U.S. farmers impacted by trade losses in 2018 and 2019. In all, USDA’s Farm Service Agency distributed $23 billion to farms, with the vast majority of funds given to grain and soybean farmers. Dairy farmers received $917 million from this government bailout program.   

Trade negotiations in the fall of 2019 led to the January 2020 signing of the Phase One deal with China, ending tariff hikes and gaining a pledge from China to buy $75 billion in U.S. goods. Interestingly, some, but not all tariff increases were reduced, and China offered U.S. businesses a tariff exemption process that allowed exports from the U.S. to enter China at pre-trade-war Most Favored Nation levels.   

Today, U.S. exports of higher-value whey proteins (WPC 80+) to China are sharply rising, while low-protein whey volumes have dropped below 2017 levels. A new tariff war in 2025 could knock back low-protein and high-protein whey sales from the U.S. to China.