The chickens are coming home to roost in the United States' growing trade battle with China. In an alleged tit-for-tariff retaliation against U.S. quotas on Chinese tire imports, American chicken processors are squawking about a ginormous 105% tariff that China's slapping on U.S. poultry.
Mere weeks after Russia lifted its poultry ban over chlorine rinses, Tyson (NYSE: TSN), Pilgrim's Pride (NYSE: PPC), and Sanderson Farms (Nasdaq: SAFM) have a new reason to be as mad as a wet hen.
Birds of a feather
The Chinese got their feathers ruffled after President Obama imposed steep tariffs on Chinese-made tires last year. Trade wars rarely result in similar products getting attacked. Goodyear and Cooper Tire & Rubber didn't have to worry that China might suddenly restrict sales there, while having their markets here protected. Since poultry is one of the few categories in which the U.S. runs a trade surplus with China, it made some sense for China to attack this segment instead.
The Chinese poultry business isn't chicken feed. The country represents 17% of the U.S. chicken export market, buying $678 million worth of fowl fare in 2009.
Doomed to repeat history
We witnessed a similar backlash after Obama went after cheap Chinese steel. U.S. carmakers Ford (NYSE: F), GM, and Chrysler all came under closer scrutiny by Chinese authorities.
There's a reason economists say the pain of the Great Depression was worsened by the protectionist moves that FDR made to "help" U.S. industries. If favored U.S. businesses are able to bend the president's ear now to broaden tariffs and quotas, it could likely spark another escalation in protectionism.
Hog farmers Smithfield Foods (NYSE: SFD) and Hormel Foods squealed at the potential for higher prices after China and Russia lifted bans on pork products earlier this year. And with good reason: China remains the world's largest consumer and producer of pork, but its demand far outstrips supply. Zhongpin (Nasdaq: HOGS) and three other top pork processors account for less than 10% of the country's total market share.
The road not taken
The U.S. can either escalate (and worsen) the situation by going after additional Chinese imports, or it can try to defuse the tiff by eliminating tariffs and adopting policies of freer trade. But Tyson and other chicken processors shouldn't hold their breath.
Last night, the House of Representatives passed a bill allowing the U.S. to impose import duties on countries with "undervalued" currencies (can you say "yuan?"). Monetary policy is trade policy now, and a new round of extremism will hold businesses in thrall.
