Caught in the Tariff Net – US-China Trade War to Shift Global Seafood Trade Flows

All key US and Chinese seafood exports are on the list

On 10 July, the Trump administration continued the trade war with China by proposing additional 10% tariffs on Chinese exports worth USD 200bn. Chinese shrimp, tilapia, and processed products such as cod, pollock, and salmon have now made the US list. These retaliatory tariffs came after the Chinese government announced 25% duties on US seafood exports. Products with the highest trade value, such as Pacific salmon, whitefish, and crustaceans, and categories primarily geared to the Chinese market, such as geoduck, clam, and sea cucumber are subject to punitive tariffs.

China mostly imports Pacific salmon, cod, pollock, flatfish, lobster, and crab from the US, and in 2017, these imports reached USD 1.3bn in value (see Figure 1). Of the US seafood exports, high-value crustaceans are consumed locally in China, but most of the whitefish and salmon are exported from the US to China for processing and re-exporting. The seafood trade flow from China to the US is even bigger – having reached USD 2.7bn in 2017. The majority of these trade flows consists of tilapia, shrimp, squid, as well as re-exports of salmon and whitefish.

Tariffs can shift trade flows

China’s additional 25% tariff imposition does not apply to US seafood categories which are processed in China for re-exporting. This represents a large part of US imports from China. However, the recent tariff retaliation by the US also covers the products processed in China and resold to the US. So if the recently proposed 10% tariffs are applied, they would affect the Chinese processing industry. Other Chinese seafood categories that could be hit by the tariffs are tilapia, shrimp, and squid. A price hike of 10% for tilapia and shrimp could cause US imports from China to shift to other markets in South America or South East-Asia.

On the other hand, China’s punitive tariffs on US products will particularly shift trade flows of high-value crustaceans from the US. Some lobster, crab, and molluscs imports from the US may absorb the price increase, but imports from Canada, Russia, Australia, and New Zealand will become more competitive for Chinese importers. The retaliatory duties might also drive China’s high-value crustacean imports from the US into the grey market, but it seems more difficult to increase shipments via this channel as a result of the Chinese government’s strict inspections earlier this year.

There will be losses on both sides

In this round of the US-China trade battle, there will be losses both for the US and China. However, the losses for the Chinese seafood industry look to be bigger – if the US implements the recently announced 10% additional tariffs. The Chinese tilapia industry is heavily dependent on the US market. And a major part of US salmon and whitefish is processed in China to be re-exported to the US. Price hikes caused by the increased tariffs would adversely affect these industries.

At the same time, the trade war between the US and China is creating opportunities for other countries. Both the US and China will need new markets for their products. High-value crustaceans, tilapia, shrimp, and squid trade flows between the US and China are expected to slow down. Exporters to China such as Canada, Russia, Australia, and New Zealand, and exporters to the US, such as Indonesia, Thailand, Mexico, and Brazil will be the winners as they can replace US and Chinese seafood exports. But this may not be the end of it. The Chinese government has already announced to complain to the World Trade Organization and respond to the US with countermeasures.

Author: Beyhan de Jong