California agriculture could find itself caught in the middle of the U.S. — China trade dispute.
After President Trump ordered a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum last week, China hit back, announcing it may impose a 15 percent tariff on agricultural exports from the U.S.
The U.S. faces competitors for every agricultural product it exports. California wines, for example, compete with wines from New Zealand and Chile. If China hits the U.S. with a 15 percent tariff on wine, that's a problem, explains Dan Sumner, Director of the University of California Agricultural Issues Center.
"We may think California wine is special, but not everybody does,” Sumner said. "And if it's 15 percent more expensive than it used to be because of the tariff, there'll be a substantial reduction in how much gets sold in China."
On Friday, China's Ministry of Commerce announced a proposal to levy counter tariffs that would impact roughly $2 billion in U.S. food and agricultural exports to China. According to a USDA Foreign Agricultural Service briefing report, tree nut products and wine are on the target list as well as fresh and dried fruit.
Many California farmers and wine producers see China as a growing market, notes Sumner. And although California’s wine producers sell a smaller proportion of their total product to China than pistachio or almond growers do, they’re frustrated by the prospect of a competitive disadvantage.
The back and forth trade disputes happening between the U.S. and China make trade less predictable, Sumner argues. He said that could lead to trade disruptions that impact California food and wine producers, even before potential Chinese tariffs go into effect.
Sumner said the proposed tariffs would likely hurt California's tree nut growers more than its wine producers because a larger proportion of almonds and pistachios are exported.
Nearly all U.S. pistachios are grown in the groves of California's San Joaquin Valley and 70 percent are sold for export.
In 2016, the value of pistachios sold to China was $530 million, more than three times the value of wine exports to that country, according to figures from the California Department of Food Agriculture.
Richard Matoian heads the American Pistachio Growers, the trade group representing pistachio farmers in California, Arizona and New Mexico. He cautions that it's not yet clear if China will hit back with tariffs on U.S. ag exports. But even the prospect raises eyebrows among California's pistachio growers.
According to Matoian, of the 70 percent of U.S. pistachios sold abroad, 55 percent went to China last year.
He said the legwork to establish China as a market for California tree nuts, fruits or wine did not happen overnight. "Certainly, when you have a large market like China, you would hate to lose even a portion of it, because of the time and effort you used to get that country opened up,” Matoian explains.
Matoian said it’s too early to know if a 15 percent tariff on California ag products will put a damper on the pistachio market due to several factors, such as the value of the dollar in relation to China's currency.
It's also unclear whether China can import the fruit, nuts or wine from another country. Matoian said Iran is the U.S.' chief competitor when it comes to selling pistachios to China.