The Seattle Times, September 21, 2018 –
By Paul Roberts –
Northwest seafood companies are the latest victims in the escalating trade war between the Trump administration and China.
First, it was Washington wheat farmers and apple growers. Then it was regional wineries. And now, Pacific Northwest seafood companies are getting sucked into the escalating trade war between the Trump administration and China.
The fleet that fishes in the North Pacific, much of it based in Puget Sound, was first caught up in the fight in July, when China imposed sweeping sanctions on many U.S. imports, including virtually all seafood. The immediate risk was clear: China’s tariffs threatened to block access to what many believe will become the world’s largest consumer market for seafood products.
But now there’s a new risk: a Trump administration trade policy that was meant to punish the Chinese, but which could end up making American seafood more expensive for American consumers — a bizarre outcome that could expose the Northwest’s seafood industry to trade-war damage both at home and abroad.
That risk became clear on Monday, when Robert Lighthizer, the United States Trade Representative, released a list of some 5,700 imported Chinese food products that will be hit by heavy new tariffs. Among them, roughly $2.7 billion in imported Chinese seafood items—everything from salmon and flounder to sole and snow crab.
Set to go into effect next Monday, the new tariffs will start at 10 percent and then jump to 25 percent on January 1.
And that’s where the problem starts. While the USTR tariffs were intended as retaliation against China’s tariffs — by reducing Chinese access to the prized American consumer market for seafood — industry officials here say the U.S. tariffs will end up hurting the American seafood business.
The reason: In today’s increasingly globalized seafood economy, many of the seafood products entering the United States from China are actually made with seafood caught in American waters by American operators. That’s because many U.S. seafood companies now send a large fraction of their catch to China for de-boning and other labor-intensive “reprocessing”, much of it done by hand, which can be performed in China for a fraction of the U.S. labor cost.
The damage from the USTR action could be especially severe in the Alaska fisheries, a $3.45 billion sector that features the largest wild-caught seafood harvest in the nation, and accounts for 58 percent of all U.S. seafood by weight, according to the Alaska Seafood Marketing Institute, or ASMI.
In 2017 alone, the value of Alaskan seafood exports to China was $988 million, or roughly 28 percent of the state’s total seafood harvest by dollar value, according to ASMI. Much of that exported Alaskan seafood came back to the United States, often in the form of higher-value consumer products, such as frozen filets and fish sticks.
But because these imported Chinese products don’t always indicate where the fish was caught — the so-called “country of origin” — many American consumers “are probably unaware they are eating and enjoying an Alaskan product,” says ASMI’s Hannah Lindoff.
As a result, the seafood industry finds itself caught in a painful, and costly, limbo: Even as China’s 25 percent tariffs threaten to make U.S. seafood too costly for Chinese processors and consumers, the proposed American tariffs threaten to make re-imported American seafood too expensive for U.S. consumers.
Seafood industry officials, normally a vocal bunch, have been reluctant to publicly criticize the tariffs for fear of antagonizing the Trump administration. As one trade group representative wryly put it, “The spouting whale gets the harpoon.”
But privately, industry officials say the USTR moves illustrate how Trump administration trade policy often ignores the complexity of the global seafood sector, which has made deft use of offshoring to lower costs and attract price-conscious consumers.
Take the flatfish category, which includes sole and flounder. Currently, some 85 percent of the Alaskan catch is headed and gutted by US processors and shipped to China. There it goes through additional processing and may then be re-exported, often to the United States, at a cost far below what U.S. processors could do, according to industry officials.
As a result, Alaskan flatfish has been marketed in the United States successfully as a less-expensive “wild-caught” alternative to salmon, cod, or pollock. A one-pound bag of wild-caught Alaskan flounder that has been reprocessed in China currently sells for $4.95 in Walmart, according to the Groundfish Forum, which represents the Alaskan flatfish and rockfish industries.
Thanks in part to that low price, flatfish has continued to do relatively well among price-conscious American consumers even as ultra-cheap farmed fish varieties, such as tilapia and swai, have entered the U.S. consumer market.
But flatfish’s advantages may now be at risk. Under the proposed USTR tariffs, that same one-pound bag of wild-caught, Chinese-processed Alaskan flounder would rise to $5.45 under a 10 percent tariff and to $6.19 under the 25 percent tariff, according to the Groundfish Forum.
At such a high price, wild-caught Alaskan flounder would lose market share to competing products from countries that don’t face U.S. tariffs, said Chris Woodley, the forum’s executive director, in a September 5 letter to the USTR. For example, farm-raised swai from Vietnam, which faces no U.S. tariff, currently sells in this country for just $3.69 a pound — and will continue to sell at that price even as Alaskan flounder grows costlier under the proposed tariffs.
That growing price gap could “drive U.S. consumers away from purchasing fish products which are sustainably harvested from Alaskan waters by U.S. flagged vessels with U.S. crew members,” Woodley wrote.
Alaska’s flatfish operations provide 2,900 year-round jobs in Alaska, plus another 1,900 in the Puget Sound region, where the fleet is based. The fleet is currently undergoing a $285 million upgrade, with much of the work being done in Puget Sound shipyards, according to Woodley’s letter.
Since the USTR rolled out its proposed tariff lists in July, Pacific Northwest fishing industry officials and Congressional members have been frantically lobbying the USTR to eliminate from its tariff list any Chinese seafood products that contain American-sourced seafood.
But those efforts have had decidedly mixed results. The USTR tariff list released Monday did, in fact, include fewer seafood products. For example, among the products spared from the proposed 10-percent tariff were pollock and cod fillets.
But other products that are often American-sourced, including salmon, crab, and flatfish, were still subject to the tariff.
Exactly why some Alaskan seafood products were spared while others weren’t isn’t entirely clear. But some speculate that the winners and losers on Monday’s list reflects the intricacies of the global fish market — and the difficulty that government trade officials, especially in the United States, have had in trying to force that market to fit into trade-war tactics.
Take the case of Alaskan pollock, which accounts for nearly a third of all fish landed in the United States by weight. At first glance, the pollock industry appears to have won a major reprieve from the USTR, which on Monday took frozen Alaska pollock fillets off the list of tariffed Chinese products.
But Jim Gilmore, a lobbyist with the At-sea Processors Association, which represents the mid-water trawl catcher-processor Alaska pollock fishery, says Monday’s action actually hurts Alaska’s pollock operators.
In the first place, little Alaskan pollock is currently exported to China. Second, thanks to a quirk in international customs definitions, the international definition for “Alaskan pollock” includes any fish of the same species, no matter where it is caught. So, for example, pollock that is caught by Russian vessels in Russian waters and reprocessed in China can be re-exported to the United States and, as far as the USTR is concerned, counts as “Alaskan pollock,” Gilmore says.
In fact, according to Gilmore, most of the pollock products that the United States imports from China are made with Russian-caught fish—so much, in fact, that removing pollock fillets from the tariff list, instead of helping Alaskan operators, may force them to compete with ultra-cheap Russian-sourced, Chinese-processed pollock.
From his conversations with Congressional staff who have talked with USTR officials, Gilmore says that USTR may not have understood the Russian connection. “I feel that USTR thought they were being helpful because they saw the ‘Alaska pollock’ designation,” said Gilmore. “I think they thought they were helping Alaskan pollock producers.”
Earlier this week, pollock industry officials actually pleaded with the Trump administration to put Alaskan pollock back on the USTR list of tariffed items.
The request was one of several by seafood groups that were pushing the USTR to tweak the tariff list in ways that actually benefit Alaskan operators. But on Friday, when the USTR published the finalized the list in the Federal Register, it appeared that the list was unchanged, and will go into effect Monday.
For now, seafood industry officials can only hope their situation doesn’t deteriorate even further, as may happen if either side chooses to escalate tactics. On Monday, for example, the Trump administration announced $200 billion in new tariffs on Chinese goods, and there was concern among some fishery industry officials that, depending on China’s response, the White House might be considering yet another salvo of tariffs as early as next week.
Even if both sides avoid further escalation, industry officials fear that the current level of trade friction will dramatically slow the progress U.S. seafood companies can make expanding into the Chinese consumer market. The big worry is that Russian seafood operators, who are currently competing with American companies for key emerging markets like China, will take advantage of the trade war to steal a march on their tariff-hobbled U.S. rivals.
That risk is especially high for both salmon and pollock — two global fisheries where Russia is trying to become China’s low-cost supplier. As Gilmore noted in an email, “If Russian pollock gains a foothold with Chinese seafood buyers because our products face a 25 percent tariff [that is] not applied to our biggest competitor, we could lose out on a potentially large market that could be a game changer for our marketing prospects internationally.”