Tariffs appear to be the core of the United States international trade strategy. The President pulled the US out of the Trans Pacific Partnership (TPP), a 12-nation treaty that would have eliminated tariffs among the participating countries. It would have been the world’s largest free-trade agreement, with North America at its center. It was never ratified by Congress, although the remaining 11 nations continue work on the pact. Mr. Trump also made the US continued participation in the North American Free Trade Agreement (NAFTA) contingent on renegotiation of conditions. Although a revised and renamed pact has been framed and accepted by the three parties, it has not been ratified by Congress and so is not yet official policy.
So, with trade agreements and potential trade agreements on hold, the President turned his attention to what he regards as unfair trade practices which undermine US industries. He put tariffs on America’s staunchest allies as well as countries he regards a villains of world trade. In all, these tariffs affect billions of dollars’ worth of goods ranging from steel and aluminum to solar panels and textiles.
Off-shore Orders Cancelled for Hay and Alfalfa
Tariffs may not be a hot topic among equestrians and horse farm operators, but they are roiling industries that are critical to the care, transport and feeding of horses.
Take hay, for instance. Rianne Perry, manager of an international marketing program at Washington State University, said that hay exports to China had begun to feel the squeeze of tariffs. Testifying at a state Senate Committee hearing in Seattle in September, she said that after the tariffs were announced the pressure began. “I did hear from some hay exporters right away that even when the tariffs were just proposed, Chinese companies were cancelling orders.” She said that one hay exporter told her sales to China were already down 40 per cent.
According to CNBC, China is the largest importer of American-grown hay. California, Idaho and Washington are the largest exporters of hay to China. Allhay.com, an online hay brokerage that serves farmers throughout the US, selling hay all over the world, explains the impact of the so-called “trade war.” “China had an eight per cent tariff on U.S. hay but in response to President Trump increasing the steel and aluminum tariffs, they added another 25 per cent on top.”
And Allhay.com cited a report from the University of California Agricultural Issues Center that projected a seven and a half per cent decrease in the price of alfalfa with a corresponding revenue reduction of nearly $400 million in 2018. “The value of US hay exports reached a new high last year at about $1.5 billion, which almost quadrupled the previous two decades.”
Allhay.com further explains that China buys more than a million metric tons of hay annually from US producers. “The demand for hay mostly comes from dairies in China. The summer months are often down for trade as China is able to produce their own hay, but they rely on the US in the fall and winter.”
So, what happens to all that hay that China is not buying? If no other off-shore markets materialize, the hay and alfalfa will go to US markets. When supplies exceed demand, prices fall. In the short term that may be good news for purchasers. But it ultimately hurts the hay farmers and could drive some out of business. Farmers operate on relatively small margins, and unstable pricing and market volatility place enormous stress on their ability to plan and to stay in business.
According to Daniel Putnam, of the University of California Davis, “hay, especially alfalfa, is the third highest crop in economic return to farmers in the country, behind only corn and soybeans, worth $18 billion to $22 billion a year over the past five years.”
Tariffs Pushing Steel and Aluminum Prices Higher
Manufacturers of horse and stock trailers have been vocal about the impact the import tariffs will have on their industry. In late 2017 the Truck Trailer Manufacturers Association (TTMA) wrote to Commerce Secretary Wilbur Ross to explain how damaging the import tariffs would be. They noted that the aluminum sheeting used for trailer roofs is available from only one manufacturer in the US. The only source of wide-width rolled aluminum sheet—beyond that one US company—is China. The wide-width sheeting is necessary for seamless roof construction, they explained.
“Imposing duties on such imports,” they said, “would instantly create a sole-source, anti-competitive monopoly for aluminum sheeting used on the vast majority of van trailers sold in the United States.” They also explained that it was unlikely that the single manufacturer would be able to produce enough of the specialty sheeting to fulfill demand.
The National Association of Trailer Manufacturers voiced similar concerns and went further to explain how the tariffs could cost thousands of workers their jobs in an action letter they provided their members in February. “The recent investigation by the Department of Commerce could significantly jeopardize our industry. While the aluminum industry claims 3,700 workers are impacted by aluminum imports, DOC is failing to recognize the tens of thousands of trailer manufacturing jobs at stake.”
Taskmaster Components manufactures tires, wheels and tire and wheel assemblies for horse and stock trailers and recreational vehicles. The company’s CEO, Tom Walker, expressed his concerns on Taskmaster’s website. “Taskmaster Components’ customer base is made up of, in large part, small one-shop operations. We are worried about our customers. We are worried about the families they support. These tariffs will really hurt the shops that are just doing enough to get by right now,“ he wrote. “I’m not only worried about the cost borne by the end consumer in our industry, I’m worried about every link in the supply chain, and that if the trailer industry is harmed, so will the many industries that rely on quality trailers to move their products.”
No Escaping the Tariffs
While it may be tempting to ruminate on this dilemma over a glass of wine or a shot of whiskey, that simple pleasure is also a victim of the tariffs. Breweries have been hit with the price increases on aluminum for cans. Much of that cost will be passed along to consumers. California’s wine industry has cultivated a large and growing customer base in China. The retaliatory tariffs China has placed on imports will undoubtedly hurt those sales. The Wine Institute says that American wines exported to China are now saddled with a combined tax and tariff rate of 68 per cent. Meanwhile, other wine regions—from South America to Europe—have negotiated free trade agreements with China and are exploiting the disadvantages America’s wine makers are facing.
Even Kentucky bourbon is not immune to the trade wars. Eric Gregory, President of the Kentucky Distillers’ Association told a state legislative hearing that his industry is in uncharted territory. “We never thought we’d be in this position, quite frankly. We’re caught in the crosshairs. We’re collateral damage.”