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Title of the article The garlic farmers who love Trump's tariffs

Source of the article https://www.bbc.com/news/business-50458312

Date the article was published 11/21/2019

Date the commentary was written 10/20/2020

Word count (750 words maximum) 746

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article relates to (please tick the Section 1: Microeconomics
one that i most relevant)

Section 2: Macroeconomics

Section 3: International economics

Section 4: Development economics

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The garlic farmers who love Trump's tariffs

By Pamela Parker
Business reporter, BBC News, California

21 November 2019

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Why US garlic farmers like Trump's tariffs

US garlic growers say they have finally started to win their 25-year battle
with Chinese imports - thanks to President Donald Trump.

The president slapped a second round of tariffs on garlic from China this year,
boosting demand for the US-grown crop.

"It is untrue that there are no winners in a trade war," says Ken Christopher,
executive vice president of California-based Christopher Ranch, the nation's
latest garlic producer.

"When President Trump's tariffs for garlic kicked in, it was at that point that
California garlic truly became competitive."

Mr Christopher says that thousands of jobs in the US domestic garlic industry are now protected

US garlic growers have complained since the early 1990s that China was
flooding the US with the pungent vegetable, selling it at below the cost of
production. This is a trade practice known as "dumping".

The US government investigated, and back in 1994 agreed that some Chinese
firms were indeed selling their garlic in the US "at less than fair value".

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As a result, any Chinese company found guilty of the practice was hit by a
whopping 377% duty. However, Chinese firms soon found ways around these
case-by-case penalties, such as by simply setting up new shell businesses.

Mr Christopher likened it to "playing whack-a-mole", and cheap Chinese garlic

continued to flood into the US. As a result of this, of the 12 US commercial
garlic farms that existed in the 1990s, only three of the largest producers
survived.

Today the remaining US garlic farmers say that Trump's tariffs on Chinese
garlic are working because they apply across the board and straight away -
there is now no way for the importers to get around them.

US tariffs on Chinese garlic were first set at 10% in September 2018, before
rising to 25% from May of this year.
 The US garlic industry is centred on the Californian city of Gilroy

"Trump's tariffs are all assessed and billed up front," says Mr Christopher. "So it
is impossible for dumpers from China to evade them."

Christopher Ranch was one of the three US garlic producers that made it
through the 1990s. Today it harvests more than 100 million pounds (45 million
kg) of the bulbs every year, supplying almost one third of all fresh garlic
consumed in the US.

Mr Christopher says that the family-owned business has seen sales soar since
the tariffs on Chinese imports were first put in place.

"We're seeing growth year-over-year of between 6 to 23% every week on our

fresh garlic," he says. "It may not seem like a lot, but when measured in
millions of pounds [in weight of sales] it makes a huge difference to our
bottom line."

To access the impact of the tariffs, the BBC looked at daily prices measured by
the US Department of Agriculture.

For white garlic sold in Boston in August, 2018, a 30lb (13.6kg) box from China
cost between $25 and $30 (£19 and £23). A container of Californian garlic of
the same size was $68.

Following the tariffs, the cost of the same box of Chinese garlic has risen to
between $52 and $55, while the Californian garlic is now between $70 and
$74. So while the Chinese garlic is still cheaper, the difference in price has
markedly narrowed.

VESSEY & CO

Californian farming business Vessey & Co closed its garlic division aer growing it alongside cabbage and cauliflower
for 100 years

Fourth generation Californian farmer Jack Vessey is, however, missing out on
the renewed demand for US garlic - his family business Vessey & Company
stopped growing the crop a number of years ago, as they couldn't make it
profitable in the face of the Chinese imports.

"Stepping away from the garlic business was a very difficult decision for me,"
he says.

"There were three generations before me who dedicated much of their lives to
garlic. [But] I decided that if there was a chance for our business to survive into
a fih generation we had to divest our garlic holdings."

For almost 100 years his family had grown garlic together with other
vegetables, such as cabbage and cauliflower.

Rivals is a season of in-depth coverage on BBC News about the contest for
supremacy between the US and China across trade, tech, defence and so
power.

Read more here.

"Garlic, for many years, accounted for more than 50% of our receipts," adds Mr
Vessey. "But once the Chinese began dumping product in the US market, we
started to cut back on our acreage and build other sectors of our business."

Frank Lavin, a former Under Secretary for International Trade at the

Department of Commerce, explains that the problem with the levy introduced
in 1994 was that the Chinese importers were too fast on their feet.

"They would be discovered and sanctioned, and then they would simply set up
another dummy structure," he says.

"The fact is they were more nimble, occasionally, in setting up these entities
than US Customs could be in discovering them."
 Higher garlic prices are now being passed onto consumers, but Mr Christopher says the US industry needed help

Mr Christopher says that - by contrast - President Trump's tariffs "are very

easy to enforce because garlic can't even enter the country now before the
tariff is billed to them. That's what's tactically changing the game."

He adds that the media is wrong to attack the president's strident tariff policy
- the US has now put in place tariffs on $200bn of Chinese goods.

"It's been a difficult thing to talk about, as the media continually simplifies the
tariffs as injuring farmers, whereas it actually benefits the domestic garlic
industry," says Mr Christopher.

Global Trade
More from the BBC's series taking an international perspective on trade:

Zut alors! The Americans who are farming snails

The shareholders fighting to make oil firms greener

Should Germany spend more to revive its economy?

Tensions highlight the importance of global trade

However, trade experts caution that higher costs are likely to be passed onto
consumers.

"If you are a domestic firm that is being sheltered from foreign competition by
tariff walls, then you tend to like tariffs because it keeps out foreign
competition," says Deborah Elms, head of the Temasek Foundation Centre for
Trade and Negotiations.

"But what that does is keep out foreign competition and allow domestic
competitors to potentially provide goods that are less competitive in the
longer run."

Mr Christopher says that while he understands that it is "not in the long-term

macroeconomic interest of the US to engage in trade wars, our industry
needed immediate relief".

Related Topics

Trump tariffs China economy US economy Global trade

 According to the article titled, “The garlic farmers who love Trump's tariffs” by the BBC,

the domestic garlic industry in the US finally turned the tide in the 25 year battle against Chinese

competition, which had violated fair trade rules, due to uniform tariffs imposed by the Trump

administration.

As stated in the article, an investigation conducted in 1994, “agreed that some Chinese

firms were indeed selling their garlic in the US "at less than fair value"” which is a process

known as dumping - the selling of goods to another country at a price below the original

domestic production and is illegal. Policies were put in place to discourage dumping but

Chinese firms found ways to circumvent this by setting up new shell businesses. The Trump

administration imposed tariffs, an import tax imposed on goods produced abroad, that effectively

closed the loopholes.

 As seen in the graph above, due to the dumping of garlic by Chinese firms, the quantity

that would be supplied by the US firms, would decrease (Q2➡Q1) because lower prices would

disincentive domestic garlic firms from supplying garlic. In August of 2018, “a 30lb box from

China cost between $25 and $30….” while, “a container of Californian garlic of the same size

was $68.” This made it virtually impossible for domestic producers to compete leading to

closures in which, “12 US commercial garlic farms that existed in the 1990s, only three of the

largest producers survived.” American workers who worked for the nine commercial garlic farms

that closed were the worst impacted because the nature of their jobs was specialized to that

particular field. Thus, it is likely that they were unable to immediately find work and would

require retraining which would be extremely expensive. In contrast, the Chinese producers

benefited from this exchange because they increased production to fill a vacuum created by the

lower prices with their quantity increasing (Q2-Q3➡Q1-Q4) which translates to more job

production.

In order to save the remaining domestic garlic producers, the Trump administration

passed a series of tariffs with the “first set at 10% in September 2018, before rising to 25% from

May” of 2019. Unlike the previous deterrent which placed “a whopping 377% duty” on Chinese

firms found guilty of engaging in dumping, the tariffs “apply across the board and straight away -

there is now no way for the importers to get around them.”

 As seen in the graph above, the price levels for garlic would theoretically increase due to

the tariff [P(dumping)➡P(Tariff)] which is proven by the cost of Chinese Garlic rising “to

between $52 and $55, while the Californian garlic is now between $70 and $74.” This price

increase will incentivise American firms to produce more garlic seen by the increase in quantity

(Q1➡Q2) and is demonstrated by the production output of one of the remaining garlic

commercial producers who is "seeing growth year-over-year of between 6 to 23% every week on

our fresh garlic". This increase in domestic production will most likely correlate to increased

employment in the sector while also resulting in decreased production by Chinese firms

(Q1-Q4➡Q2-Q3). In addition, another positive aspect of the imposition of the tariff is that the

government will generate tax revenue on the imported goods ( ). This revenue can be used to
fund government programs essential to the further development of the US. The tariff, however, is

accompanied by several negative side effects. To begin with, there will be deadweight loss ( )

due to two reasons: 1) inefficient producers incentivised by artificially high prices - producer

surplus loss 2) reduced consumption (0-Q4➡0-Q3) - consumer surplus loss.

In the short term, the tariffs will prop up the domestic garlic producers and protect them

from foreign competition subsequently also protecting jobs dependent on the sector while also

generating tax revenue. However, this will be at the expense of the domestic consumer who will

have to shoulder the economic burden. This may negatively impact the baking industry because

garlic is a necessary product for several recipes consequently raising the cost of production and

reducing their profit. In the longer term, the tariffs will support inefficient production due to a

misallocation of resources because the domestic garlic producers will no longer have to operate

at maximum efficiency and will begin to cut corners. In conclusion, the imposition of the tariff

on chinese garlic production may have saved the domestic garlic industry in the short run but

could have created problems which will need to be addressed in the long run.