The Trade Numerologist: Discord in (Real) Apple Markets

02 Apr 2018 John Miller

As it had threatened, China has imposed new import duties on $3 billion worth of U.S. imports, including a 15% tariff on fruit, to retaliate for U.S. tariffs on steel and aluminum.

The move exacerbated trade tensions between the two superpowers, which could get worse after the U.S. announces new tariffs on some 1,300 Chinese products, totaling around $60 billion, likely triggering another wave of retaliatory tariffs.

The new Chinese taxes threaten to choke growth in a key part of U.S. fruit trade, the U.S.’s apple industry, worth an estimated $4 billion a year. In the U.S., two-thirds of apples are sold for eating whole, with the rest going to make juice, sauce and other apple-based foods.

Apple production can be fickle, depending on climate, disease and availability of labor, but the U.S.’s 7,500 apple producers have been increasing exports since the turn of the century. Growers credit the North American Free Trade Agreement, and the opening of other markets around the world.

U.S. apple exports, 1999-2017

1999: 648.9 million kg
2002: 596.4 million kg
2005: 690.2 million kg
2008: 712 million kg
2011: 833.4 million kg
2014: 888.4 million kg
2017: 911.7 million kg

The U.S.’s top two buyers are its NAFTA partners, Canada and Mexico. China is only its tenth biggest market. Earlier this decade, China banned some imports from Washington state, the nexus of U.S. production, because of concerns over disease, but it lifted those restrictions, and U.S. apple growers had been looking forward to making more inroads in the world’s biggest market.

“As the middle class grows in China, consumers are anxious to try new taste profiles, and the U.S. wants to accommodate them,” Jim Bair, president of the U.S. Association, writes me in an email. China grows mostly Fuji apples, so there’s demand for U.S. varieties like “Red Delicious, Granny Smith and Gala,” Mr. Bair explains.

In a recent editorial in the Wall Street Journal, Mr. Bair noted that total U.S. agricultural exports to Canada and Mexico have quadrupled in real terms since the NAFTA was signed in 1993, growing to $38.6 billion in 2015, and argued that the U.S. should be “prudent” in renegotiating the deal.

Top U.S. apple markets, 2017

Mexico $274.8 million
Canada $174.3 million
India $97.4 million
Taiwan $73.6 million
Hong Kong $37.3 million
Indonesia $35.7 million
Vietnam $34.5 million
UAE $29.5 million
Dominican Republic $18.7 million
China $18.4 million

President Trump’s protectionist moves could stop U.S. apple growers, especially those in Washington state, from further ramping up exports.

Top apple exporting states, 2017

Washington $720.6 million
California $109.7 million
Arizona $71.8 million
New York $20.4 million
Florida $12.7 million

The Food and Agriculture Organization estimates that global annul apple production is around 85 million tons, roughly half of which is grown in China. By comparison, the U.S. produces under five million tons a year. It exports a much higher percentage of its capacity than China, but, as in the steel industry, China has ramped up output, and now has the capacity to flood global markets.

In the last ten years, global apple trade has risen over 20% to around nine million tons a year. If U.S. growers are constricted by retaliation against the U.S. for its own import tariffs, that could prop up competitors in China and the European Union.

Top apple exporters, 2017

China $1.5 billion
U.S. $975.2 million
Italy $964.2 million
Chile $599.9 million
France $589.2 million
New Zealand $488.3 million
South Africa $376.4 million
Poland $375.5 million
Netherlands $289.5 million
Iran $131.8 million

The world’s top apple importers are in Europe, where the fruit has been part of people’s casual and formal diets for generations. Those markets are strong, but largely saturated and hard to find growth in.

World’s top apple importers, 2017

Germany $662.3 million
UK $467.5 million
Russia $406.6 million
Netherlands $296.5 million
Taiwan $270.6 million
Belarus $267.5 million
Indonesia $263.5 million
U.S. $233.3 million
Canada $223 million
Egypt $209.4 million
Thailand $201.9 million

The fastest-growing markets are developing economies in Asia, where rising incomes are allowing people to buy more fruit. Both Indonesia and Vietnam are on the U.S. and China’s top ten biggest buyers.

Top Chinese apple markets, 2017

Thailand $157.9 million
Philippines $152.5 million
India $127.5 million
Vietnam $174.5 million
Bangladesh $109.4 million
Russia $104 million
Indonesia $134.3 million
Myanmar $94.6 million
North Korea $43.1 million
Hong Kong $40.8 million

China exports under $10 million a year into the U.S., mostly Fuji apples into niche Asian markets in cities with Chinatowns like Los Angeles, San Francisco, Seattle, Chicago and New York.

If the two countries continue to escalate trade restrictions, they’re unlikely to gain more access.

After announcing its new duties on apples and other products, the Chinese finance ministry said that the U.S. duties on metals had “seriously damaged our interests.” It called its response “a proper measure adopted by our country using World Trade Organization rules to protect our interests.”

What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.

The Trade Numerologist is IHS Markit’s unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit’s Global Trade Atlas database, the world’s most complete and accurate set of trade numbers.

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