Last week President Donald Trump tweeted that trade negotiations with China were progressing, and U.S. stock markets immediately rallied. While a swift end to the trade war would be best for the U.S. dairy industry as well as other agricultural sectors, it appears that China-U.S. trade talks will likely extend well into 2019 increasing risks to world economies and thus global dairy trade.  

“The U.S. tariff strategy with China could be succeeding at slowing the Chinese economy, but that is not good news for world markets and U.S. agriculture,” according to Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle. “The Chinese yuan dipped to its lowest level in a decade in late October, and several reports indicate that while China’s economy continues to grow, it is at a much slower pace than prior to the onset of the trade dispute with the United States.”

China’s third-quarter gross domestic product (GDP) grew 6.5%, compared with third-quarter 2017. Third-quarter growth slipped 0.2 percentage points from second-quarter’s 6.7% growth and was the lowest growth rate since first-quarter 2009 during the global financial crisis. Manufacturing sentiment in China dropped to 50.2 in October, down from September’s 50.8, the lowest level in two years and barely above the 50-point threshold that separates expansion from contraction, Dorland notes. 

“The impact of the U.S.-China trade spat is not contained to the United States and China. Other Southeast Asian economies that rely on trade between China and the United States are also experiencing slower exports, declining currencies relative to the U.S. dollar, and slowing economies. That has a two-fold impact on dairy imports,” she says. “First, imports become more expensive in dollar terms, and second economic uncertainty could cause consumers to pull back on their spending.”

South Korea is a case in point. The country missed its third-quarter growth expectations, and some reports suggest slowing exports could be partly to blame, says Dorland. At the same time, South Korea’s year-over-year cheese imports dropped 23% in September to 8,685 metric tons (MT), or 19 million pounds. While U.S. cheese exports to South Korea accounted for 46% of the country’s total imports, U.S. volumes were 10% lower than they were a year earlier.

Turning to Japan, the Bank of Japan last week noted that downside risks to the country’s economy include the unpredictability of U.S. polices, global protectionism, and repercussions from Britain’s exist from the European Union. Similar to what’s happening in South Korea, Japan’s cheese imports in September fell 6% behind the prior-year’s pace, Dorland notes.

“While it’s still too early to determine the full impact on U.S. dairy, the risks to the global economy remain elevated as the trade war rages on,” she says.

Article sourced from https://www.milkbusiness.com

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