Why Pork?

On April 1st, China announced to retaliate on US pork industry. In my previous post, I analyzed the ag trade between the U.S. and China (see here). One message from that post is that China imports quite a bit of agricultural commodities from the U.S.. The analysis leaves me with one more question: why does China choose pork to retaliate on? What is special about pork? Here are two possible reasons.

(1) Pork exports matter to Iowa (or maybe the voters of Iowa)! 
In a talk (here) and a presentation (here), Dr. Glynn Tonsor analyzed the structure of US pork exports. One of his argument is that China's share on US pork exports has been declining in recent years. Therefore, China's retaliation on pork would not have high impacts on US pork exports overall. This is true. However, this does not sound right from China's perspective. Why would China act on this if it has limited impacts on the U.S. agriculture?

So, I dig into the US export data and find something interesting. In the figure below, I plot the value of pork exports by states. The data are from the ERS of USDA (see link here). The dataset is not perfect in terms of capturing the state exports, but the ERS has tried hard to get them. The figure clearly shows that Iowa is the major state that exports pork. Due to the data limitation, I do not know how much of the Iowa pork were shipped to China. However, it is for sure that the Iowa farmers are at stake. Why Iowa? This might be related to the current political environment in the U.S.. This is beyond the scope of my knowledge. The readers could dig more into this.

(2) US pork has lost market shares in China.
Note that the pork tariff would potentially increase domestic prices and hurt the consumers in China. However, the data show that China's reliance on US for pork has been dramatically declined in recent years.

In the figure below, I show the total import value of China for pork (in bars) and the US shares (in lines) during 2009-2016. The figure shows something important. During 2011-2015, China's total pork imports were rather steady (around 2 billion dollars). However, the US share dramatically declined from 58% to 18%. The lost shares have been filled by some EU countries, including Germany (a large pork producer in the region), Spain and Denmark (these are not shown in the graph). I am not sure about the reasons behind the change in import structure. Is it the price effect? or policy effect? This needs further investigation. However, this pattern implies that the EU countries can quickly substitute the US as pork suppliers to China. In a nutshell, the low import share from the US and the existence of EU as alternative suppliers make China resilient to the tariff shocks. 

Agricultural Trade between the U.S. and China.

On April 1st, China's Ministry of Finance announced to impose steep tariffs on a list of US products (see the Chinese version of announcement here). China claims that the action is to respond to the tariffs that were recently imposed on imports of steel and aluminum in the U.S.. 

Several agricultural commodities are included in the list. For instance, 25% tariffs are imposed on "pork and its products". China is a large importer of the U.S. agricultural products. Hence, it is not surprising that China would target at the U.S. agricultural products for retaliation. But, what agricultural commodities can be affected? and how large the impacts could be?

In the figure below, I plot the total export values of U.S. agricultural commodities and the shares that China takes. These are averaged values during 2014-2016. The data are sourced from the US Department of Agriculture. I select commodities that China took more than 10% of the export shares ( in addition to pork).   

The figure shows that China's share on soybean is the largest, amounting to 60%. Meanwhile, the U.S. export value is around 22 billion dollars, which is pretty high. This suggests high possible impacts of soybean tariffs by China on the U.S.. A study by Dr. Tyner and Dr. Taheripour found that "if China imposed 30% tariff, its imports of U.S. soybeans could drop by 71%. Meanwhile, total U.S. soybean exports could fall by 40%" (see link here).

China also takes high export shares in distillers grains (41%), hides (51%) and coarse grains (85%). The coarse grain is mainly sorghum. However, the total U.S. export values of these three commodities are less than 5 billion dollars.

China's share on forest products is 27% and the total U.S. export value is around 9 billion dollars. The forest products mainly include various kinds of limber, such as red oak and white oak and so on. Hence, tariffs on these products would also have prominent impacts on the U.S. agricultural economy.