According to a study by the European Commission, China is the largest and fastest growing seafood market in the world. However, due to an ongoing China-U.S. trade war, American Alaska Pollock producers are having their access to this expanding market limited during this period of growth.
The path to this exclusion from such a lucrative market began in January 2018, with the onset of the U.S.-China trade war. The Trump Administration imposed tariffs on Chinese goods entering the United States while China in turn placed tariffs on U.S. exports, setting off a series of tit-for-tat measures that would see hefty tariffs against multiple U.S. products, including Alaska Pollock.
The first round of Chinese tariffs went into effect on July 6th, 2018, and netted Alaska Pollock in its list of affected goods. Overnight, American companies were placed at an acute disadvantage compared to their competitors — most importantly, Russia.
Tariffs imposed by China on U.S. exports have made Russian-caught Pollock much cheaper in comparison, data from the Peterson Institute for International Economics show, result in U.S. producers losing out on a significant source of growth.
Russian and American fishing boats trawl in the same frigid waters of the Bering Sea for Alaska Pollock (“Alaska Pollock” meaning to the product, not the origin of the catch), and export their processed products around the world. Before the Chinese tariffs went into effect, China charged Russian and American companies the same standard 7% tariff, known as the Most Favored Nation (MFN) rate.
Significant Sales Drop
With tariffs in place against U.S. companies, Russian fisheries continued to sell Alaska Pollock into China with no change to their price, while the price of American-caught Alaska Pollock was raised by 25%.
“The moment that happened,” said Matt Tinning, Director of Sustainability and Public Affairs at At-Sea Processors Association, a Seattle-based trade association, “our momentum in the largest and fastest growing seafood market in the world basically came screeching to a halt.”
According to the Anchorage Daily News, sales of Alaska seafood to China dropped by $204 million from 2017 to 2018, down from an all-time high of $988 million.
Throughout the trade war, tariffs have risen as high as 42%, and they currently stand at 37%, including the MFN rate. During this time, the MFN rate for certain seafood products coming from Russia into China were also lowered, further widening the price gap. Also, throughout the past three years, Russian-caught Alaska Pollock has entered the United States tariff free via processing facilities in China, as the U.S. has not imposed tariffs on Chinese or Russian Pollock in return.
Foreign-caught Alaska Pollock was on the list of tariffs that never went into effect as a result of agreements made during “Phase One” negotiations. The “Phase One” agreement was signed in January 2020 with the goal of addressing the issues that led to the trade war.
Advocates for the Alaska Pollock industry, including Matt Tinning and the non-profit advocacy group Genuine Alaska Pollock Producers, are asking the Biden Administration to negotiate with China for a return to the pre-tariff scenario.
The U.S. and China signed the “Phase One” trade deal in January, 2020, but any glimmers of hope that this would improve seafood exports was mostly a mirage: tariffs on Alaska Pollock remained in place at 37%.
According to a statement by the Office of the United States Trade Representative in 2019, “The Phase One agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years.” But these promises, which included the purchasing of seafood, has proven difficult to keep, owing to characteristics of the Chinese economy.
While agricultural products are imported by China from the U.S. through state-run firms, allowing the Chinese government can promise to buy from American farmers and then direct its companies to pick up their phones and order more soybeans, Chinese buyers of foreign seafood are primarily private owned small businesses. The government either has no mechanism by which to direct private businesses on their choice of suppliers, or it does not want to use them.
“The mechanisms that helped boost China’s purchases of agricultural commodities included in Chapter 6 of the Phase One Agreement have been completely unsuccessful for seafood,” Tinning said, “sales of U.S. seafood to China are down 44% since 2017, and sales of U.S. Alaska pollock are down 55%. Absent tariffs, we would have seen strong growth over 2017 levels.”
Hopes that the Biden Administration would reverse these trends have been unfulfilled. Of course, the complexities in the relationship between the U.S. and China make it difficult to help individual industries, but in the case of seafood there are ways to make it happen.
“We are seeking a blanket exclusion from retaliatory tariffs that have been imposed on U.S. seafood,” Tinning said. “We believe that’s the only feasible way for China to meet its Phase One seafood purchase obligations. We look forward to having the opportunity to once again compete on fair terms in the China market.”
The effects of partial exclusion from the Chinese market threaten to be long lasting. Craig Morris, the CEO of Genuine Alaska Pollock Producers, pointed out the potential consequences of missing out on building relationships in China while the market is growing.
“[Business in China] is very relationship oriented, and it’s very difficult to get Chinese businesses to switch suppliers without you having to come in and to really aggressively push your product, which is certainly not what anyone in the industry wants to do,” Morris said. “It’s very important for us to have access to the Chinese market because the worst thing that can happen to us is that Russia establishes those customers, establishes those relationships, and then it’s very expensive and very difficult to displace those relationships.”
The pandemic also highlighted the importance of having access to new markets for purposes of risk management. Throughout 2020, frozen foods and drive-through services – two types of sales where Alaska Pollock is very popular – business boomed. But when that trend shifts as the world re-opens and costumer habits change, the seafood industry will need to adjust.
“Look at McDonald’s for an example,” Morris said. “When COVID hit, their sole focus was getting drive-throughs to move as rapidly as possible … they restricted their menu to really go down to a core set of things, and fortunately for us, the Filet-O-Fish [Alaska Pollock] is a core menu item, and so by default, because there are less options available, Alaska pollock really benefited from strong demand … you’re starting to see that menu diversification come back, and so something that we’ll have to deal with, just to manage risk, is [to have] as many outlets as possible just so that we don’t have all of our eggs in one basket.”
“That’s why it’s very important for us to get the tariff issue resolved,” Morris continued, “because for us to manage risk, we have to have as many customers and as large as a customer base as possible.”