Impact of tariff increase remains to be seen

Andrew D. Brosig
Posted 8/4/17

News of an increase in tariffs on some U.S. beef products by Japan has people around the country and across the region worried about a potential reduction in sales impacting an already struggling cattle market.

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Impact of tariff increase remains to be seen


TORRINGTON – News of an increase in tariffs on some U.S. beef products by Japan has people around the country and across the region worried about a potential reduction in sales impacting an already struggling cattle market.
But, while last weeks announcement of an increase in tariffs on frozen beef heading to Japan is certainly not good news, the outlook may not be as dire as some believe, a University of Wyoming economics professor said.
“The tariff increase is actually fairly modest – from 38.5 percent to 50 percent,” said Dr. Alexandre Skiba, an economist specializing in international trade and tariffs who teaches in the Department of Economics and Finance at the University of Wyoming in Laramie.
The tariffs “are a percentage of the delivered price of the goods,” Skiba said Monday. “That means the actual increase on the delivered price (of U.S. beef) is about 8.3 percent.”
Beef from the United States accounts for about 35 percent of the imports bound for Japanese consumers. Australia, America’s largest competitor in the Japanese market, imports about 55 percent of the beef bound for Japanese consumption.
Most of that beef is used by beef bowl, hamburger and other fast food outlets, according to an Associated Press story published this week. So far this year, Japan has imported more than 89,200 metric tons of frozen beef, according to information from the Japanese
Finance Ministry.
The U.S. share of those imports has increased recently, which triggered the so-called “emergency tariff” hike. Under World Trade Organization rules, Japan can introduce safeguard tariffs – designed to protect domestic production – when imports increase by more than 17 percent year-to-year in any given quarter.

Withdrawal hurt
U.S. farmers had been hoping for increased access to Japan’s lucrative markets as part of the Pacific Rim trade initiative, the Trans-Pacific Partnership. But U.S. President Donald Trump withdrew the country from that accord, which had been years in the making, after he took office in January.
Trade agreements Japan negotiated with the 10 remaining members of the TPP remain in effect. So Australia receives a more favorable tariff rate of 27.5 percent on frozen beef and won’t face the same increase, thanks to free traded agreements negotiated as part of the TPP talks.
“The U.S. beef producers have already been placed at a competitive disadvantage in the Japanese market due to our country’s inaction on trade,” U.S. Rep. Adrian Smith (R-Nebraksa) said in a press release. “With this hike to 50 percent, our producers will face nearly double the tariff as their Australian counterparts.”
Max D’Onofrio, press secretary for Sen. Mike Enzi (R-Wyoming) agreed.

“Senator Enzi is disappointed that Japan decided to impose an increased tariff on frozen beef from the U.S.,” D’Onofrio said in a press release late Monday. “It is an unproductive step that hurts not only American cattlemen and beef exporters, but also businesses and customers in Japan.”

‘Big impact . . .’
“Japan’s decision to raise tariffs on U.S. beef puts American producers at a competitive disadvantage,” U.S. Sen. John Barrasso (R-Wyoming) said in a release Tuesday morning. “We must work together to make sure that all future trade agreements focus on making it easier to export Wyoming products overseas.”
The long and the short of it is the tariff increase will impact cattle producers in Wyoming and Nebraska.
“Anything involving international trade has a big impact,” said Dr. Jack Whittier, director of the Panhandle Research and Extension Center in Scottsbluff. “We’re dependent on exports in the beef sector in both states.
“A lot of things are out of the control of producers in terms of trade agreements,” he said. “I hope there’s not any decrease in Japan’s uptake of U.S. beef.”
It falls on the policy makers, the people who negotiate and approve trade agreements with other countries, to recognize the potential impacts of their decisions on local producers, Whittier said. The recent addition of China as a trade partner for High Plains beef may help offset some of the difficulties this new tariff could present, at least for producers in Nebraska, he said.
“There wasn’t a huge increase in the markets because of that announcement, but it’s a good sign in the long run,” Whittier said. “If we can continue to increase (China’s) desire for our beef, that has to be a positive.”

Switching sources
There is a difference in the markets for beef in Japan, with Kobe beef and other delicacies fetching premium prices. The cost of imported beef still tends to be half or less the price of beef produced domestically in Japan.
So the significant impact for the average Japanese consumer will probably trend toward a switch from American to Australian beef, when the option is available, Skiba said. It all boils down to consumer choice.
“The relevant question is, how similar is Wyoming beef to Australian beef?” Skiba said. “I don’t think this tiny change in the price of American beef will make them buy local (Japanese) beef.
“But Australian beef is a different story,” he said. “I’ll assume there’s going to be some substitution toward those products.”
Those differences are already reflected in the share each country enjoys in the Japanese markets, Skiba said.
Another, troubling component is the way countries sometimes use tariffs. While they’re affective tools to protect local production of a variety of goods and commodities, tariffs can also be used as a political tool, a way for one country to in effect punish another country for doing something it doesn’t like.
“Tariffs have been used in the past to undermine foreign competition, to protect domestic markets,” said Dr. Rob Godby, associate professor in the University of Wyoming Department of Economics and Finance.
“The whole idea behind a tariff is it raises the price of an imported good and makes consumers in that country less willing to buy it,” Godby said. “It can also be done as a punitive measure for some other trade measure that’s occurred. Often, it’s very political.”
Skiba agreed. It’s his belief the tariff increase, at least in part, is a direct result of the United States backing out of the Trans-
Pacific Partnership.
“The short answer is, it’s probably going to hurt” American beef producers, Skiba said. “Trade effects are real. But I don’t think it’s going to hurt that much.”
It’s just one more thing on top of soft market prices for beef and other issues that challenge American producers, said Jessica Groskopf, an Extension Educator specializing in Agriculture Economics at the Panhandle Research and Extension Center. The bottom line is it’s all about getting local beef in the mouths of consumers in as wide a market as possible. Anything that negatively impacts that goal puts additional stress
on producers.
“Our profit comes from overseas consumers,” she said. “When we’re looking at the beef market, usually where we see growth is feeding people overseas.
“Any time you increase costs to people overseas, that means fewer people eating American beef,” Groskopf said. “We want as many mouths eating American products
as possible.”