Projects Funded for Jiayi (Carol) Dong

2020-2021

Impact of the U.S.-China Trade War on California Agriculture

  • Jiayi (Carol) Dong
  • Sandro Steinbach
  • Colin Carter

Abstract

Specific Objectives of the Project:
In 2018 the U.S. government started a trade war with China and other trading partners. In response to import tariffs imposed by the U.S., China and other countries responded with retaliatory import tariffs, explicitly targeting U.S. agricultural exports. This study investigated the consequences of retaliatory tariffs on the agricultural and food industry in California. We had two specific objectives. First, we measured the ‘net’ impact of the retaliatory import tariffs on California’s agricultural and food exports. Second, we measured the extent to which U.S. federal trade-war subsidies offset producer losses arising from the retaliatory tariffs.

Project Report/Summary of Results:
The U.S. substantially increased a number of import tariffs in 2018, precipitating a trade war that was very costly to U.S. agriculture, given its dependence on international trade. The losses arose because a number of trading partners retaliated with import tariffs targeted at U.S. agricultural exports. The U.S. government then created a Market Facilitation Pro-gram (MFP) to compensate U.S. farmers for trade war losses. We have found that except for cotton and rice, California farmers were not made whole by the MFP payments. California’s producers of tree nuts, dairy, and processed fruits and vegetables were the biggest losers.
Our research concludes that the U.S. government under-estimated the overall economic losses incurred by California’s agricultural and food producers due to the 2018 trade war. While the MFP program overcompensated some farmers, others faced substantial trade-war losses that outweighed MFP payments. Particularly export-oriented food processors were heavily affected by retaliatory tariffs but received no compensation from the U.S. government. The unequal treatment of agricultural and food producers impacted by the 2018 trade war is a pattern also observed in other states. However, these inequalities are more pronounced in California than in any other state. California’s producers focus on high value-added products and have a significant stake in reducing trade barriers everywhere and in particular in China. We believe the MFP payments may have jeopardized international trade arrangements because the excessive payments violated U.S. farm subsidy commitments to the World Trade Organization (WTO), and this could be challenged at the WTO. This means the effects of the trade war may drag on.