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 Richmans' Trade and Taxes Blog

China forcing U.S. chicken producers to move farms and processing plants to China and use non-U.S. corn
Howard Richman, 4/20/2014

Last August, the U.S. won a WTO dispute on Chinese chicken tariffs. With U.S. corn prices low and Chinese consumers leery of buying Chinese chicken due to outbreaks of Avian Flu in China, everything seemed set for a huge rise in U.S. poultry exports to China.

But China ignores WTO decisions against it. When forced to take down tariffs, China simply puts up non-tariff barriers. According to the March 28 outlook from  Rabobank Poultry Quarterly, there is the “potential” for increased U.S. poultry exports to China, not the expectation of such an increase.

As a result, U.S. chicken producers are building new chicken farms and chicken processing plants in China, where they have to take extraordinary precautions to prevent an Avian Flu outbreak. A Mother Jones story quotes Cargill CEO David Maclennan saying:

So we are building a facility in Shuzou, Nanjing, which will have 45 farms and it's a chicken facility that will process 1.2 million chicken every week. That's 60 million chicken a year. We have a hatchery, where we hatch the eggs and one-day old chicks, DOCs, get transported to the farms. The employees live on the farm. They can't leave because then you increase the risk of disease. So you grow the chicken for 44 days. The chicken goes to the plants, get processed, might be for KFC and McDonald's, might be for retail. They can count on us because they know where every one of their chicken came from. It came from us because we're fully integrated as opposed to other companies.

At the same time, the Chinese government is making sure that American chicken producers in China don't import U.S. corn. According to an April 14 Reuters article published in the Huffington Post (China's Rejection of GMO Corn Has Cost U.S. Up to $2.9 Billion), they are keeping out U.S. corn through one of their many non-tariff barriers. Here is a selection:

CHICAGO (Reuters) - China's rejections of a banned variety of genetically modified U.S. corn have cost the U.S. agriculture industry up to $2.9 billion, a grain group said on Wednesday in the first estimate on losses from the trade disruptions.

The National Grain and Feed Association (NGFA) estimated in a report that rejections of shipments containing Syngenta AG's Agrisure Viptera corn resulted in losses of at least $1 billion, based on an economic analysis that included data supplied by top global grain exporters.

China, the world's third-biggest corn buyer, in November began rejecting corn containing Viptera, known as MIR 162, after previously accepting the grain. The variety, which has been cleared by the United States and other importers, has been awaiting approval by Beijing for four years....

The Chinese government minimizes imports and maximizes exports with the United States in order to steal U.S. industries. They minimize imports through currency manipulation, tariffs, and non-tariff barriers in order to steal American exporting industries. They maximize exports through currency manipulation and export subsidies in order to steal American industries that compete with imports.

In 2013, the Chinese government only let in 34¢ of American products for every $1.00 of Chinese products that they exported to the United States. In the past they have forced American vehicle and heavy equipment exporters to build their factories in China. Now they are forcing U.S. chicken exporters to move their farms and processors to China.

The United States could force the Chinese government to let in American products by imposing a scaled tariff on Chinese products which is proportional to the U.S. trade deficit with China. The scaled tariff would be WTO legal if imposed by a trade deficit country (such as the U.S.) in non-discriminatory fashion upon all of the countries that run both overall trade surpluses and bilateral trade surpluses with the United States. For more information on the scaled tariff see our forthcoming book Balanced Trade, to be published by Lexington Books in May.