Economic Development, Food Service & Agriculture, and Law

Agricultural companies monitor brewing trade war

China was Michigan’s second largest export market in 2017.

March 30, 2018
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A trade war is brewing, and Michigan might be caught in the crossfire.

President Donald Trump ignited the possibility after he announced his administration would be imposing tariffs of $60 billion on China’s exports to the United States. The announcement came after the White House conducted an investigation of China’s practices related to technology transfer, intellectual property and innovation.

According to the White House, the investigation found China conducted unauthorized intrusions into, and theft from, the computer networks, technologies and intellectual properties of U.S. companies.

According to Reuters, the Chinese Embassy responded in a statement saying, “The actions undertaken by the U.S. are self-defeating. They will directly harm the interests of U.S. consumers, companies and financial markets.”

Some of the companies that could be affected are agricultural businesses in Michigan. West Michigan produces a variety of fruits, such as cherries, blueberries, apples and strawberries. According to a statement from Gordon Wenk, director of the Michigan Department of Agriculture and Rural Development, the department is monitoring the situation closely.

“Certainly, we are concerned about the impact this could have on Michigan producers and food companies,” Wenk said. “However, it’s premature to speculate at this time as we don’t know what — if anything — may happen.”

Wenk said China was Michigan’s second largest export market in 2017 for food and agriculture exports with $168 million of products exported to the market, edging out Mexico. Wood products are the largest category, followed by dairy and fruit products.

In 2017, Michigan exported nearly $25 million in dried fruits to China. A potential 15 percent tariff on dried fruits significantly would increase the price of these value-added food products and lead to a negative impact on food companies in Michigan, Wenk said.

Although tariffs placed on China’s import goods to the U.S. is a result of years of unfair trade practices, Grand Valley State University economics professor Paul Isely said it can backfire and harm Michigan's trade relationship with other countries.

“Many of the crops Michigan farmers export are also cultivated in other areas of the world,” Isely said. “As our tariffs go up, other countries will increase their tariffs on the U.S. This leads to prices going up for U.S. goods that people in that country normally buy and then will increase their purchases from other countries.

“In the (short term), this leads to lower prices for U.S. crops because there are fewer people competing to buy the U.S. crop. In the long run, this can lead to an erosion of trust and infrastructure to support sales in different countries. This, ultimately, leads to the U.S. losing on even more contracts.”

The uncertainty is unsettling for many local family farmers, said John Schaefer, president of Jack Brown Produce in Sparta. The company packs apples from 75 family farms in the area, and more than 40 of those families are shareholders in the company.

The apples are stored, sorted and packed at the facility. They are then transported to domestic retail chains, such as Aldi and SuperValue. Schaefer said his company ships between 5,000 and 8,000 apples per day.

Although Jack Brown Produce does not ship its apples to China, Schaefer said it intends to do so. He said the industry has fought hard over the years to achieve full access to the Chinese markets.

“It is kind of a disappointment at this time that they are contemplating putting a tariff on these apples,” Schaefer said. “If the price goes down, that will affect us. If the price goes down because there are fewer markets available for United States apples, that will affect us, not just the (more than) 90 employees we have in our facility, but literally hundreds, if not thousands, of workers employed by our family farms.”

In November, five Michigan companies — Traverse City’s Herkner Farms, a producer of fruit toppings, condiments, jams, preserves and sauces; Scotty O’Hotty, a barbecue sauce company based in Dearborn; United Hops Brokerage, a broker and processor for hop farmers based in Greenville; Cherry Marketing Institute, of DeWitt; and Nirvana Tea Inc., of Detroit — traveled to Asia on a trade mission to explore different trade markets, including China and South Korea.

“(Governor Rick Snyder’s) administration will keep its foot on the gas to build upon current international market relationships while working to identify new, emerging global opportunities,” Wenk said. “Gov. Snyder, MDARD and other state agencies continue to be committed to helping Michigan’s food and agriculture companies make their mark in the world marketplace.”

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