Implications trade war in US market

28 Jan 2019

Implications trade war in US marketGlobalPETS | Implications trade war in US market

  • U.S. pet care companies like PetSmart see costs rising as administration pursues tariff spat
  • Certain tariffs could rise from 10 percent to 25 percent if no deal is reached with China by March 1

Pet fish owners could soon pay more for aquarium water filters when they visit their local PetSmart, due to tariffs imposed on imports from China.
A few aisles over, the price of dog and pet food could soon rise as steel and aluminum tariffs increase the costs for producers such as Cargill and J.M. Smucker Co.

It’s not just the pet products coming here: retaliatory tariffs are making it harder for U.S. pet suppliers to sell their food in China, too.

The $70 billion pet care industry illustrates just how far the U.S.-China tariff war reaches and it could soon get worse. If a deal isn’t reached by March 1, dog leashes, collars, muzzles and harnesses are among the $200 billion in Chinese goods that will see the 10 percent tariff effective since September rise to 25 percent.
Pet care companies of all sizes are already complaining about the potential consequences in requests for relief filed with the Office of the U.S. Trade Representative.
China’s 25 percent retaliatory tariff on U.S. pet food has shut the door even tighter for U.S. producers hoping to access a tough but lucrative $300 million market, Pet Food Institute Vice President of Regulatory and International Affairs Peter Tabor said.
PetSmart has asked for an exemption on aquarium water filters, telling USTR that a 25 percent duty would substantially impact retail prices that would be passed on to consumers.
Innovate Pets, Inc. a small veteran-owned start-up in Loudon, Tenn., told USTR that the 25 percent tariff on manufacturing equipment would have “catastrophic” effect on its pet treat business that could result in lower sales and job losses.GlobalPETS | Implications trade war in US market

The companies’ exemption requests are pending. Meanwhile, the processing of these requests is at a standstill during the partial shutdown of the federal government while the bulk of USTR is furloughed.
Other imports from China impacted by tariffs include soft-sided pet carriers, dog leashes, rope toys, puppy paper pads, and aquarium/terrarium decorations made of resin and artificial stone.

ALTERNATIVE SOURCING
Companies are struggling to find alternative sources for items like water filtration devices, Hun Quach, Retail Industry Leaders Association, vice president of international trade, told Bloomberg Law. Meanwhile, they’re paying tariffs without certainty of getting exemptions, she said.

“Our main street businesses are bearing the brunt of these tariffs as well as their customers,” she said. Many products don’t have U.S. manufacturers, such as some fish aquarium filters and filter cartridges, she added.
Companies could be pushed to the brink if a China deal isn’t reached by March 1. “That type of 15 percent increase overnight could have a disastrous effect,” said Mike Bober, Pet Industry Joint Advisory Council president and chief executive office. It could make the difference between “a margin that allows one to continue operating profitably to one that requires them to lay off employees, shut down altogether or pass on costs to consumers.”

ANOTHER SETBACK
The trade war has also set back progress in accessing what could have been an “astronomical” market for U.S. producers, Bober said. Without tariffs and other restrictions related to avian flu and mad cow disease, U.S. pet food sales to China would be about $300 million annually and China could become the number two export market for U.S. pet food firms, Tabor said. But China’s 25 percent tariff on U.S. cat and dog food imposed in the tit-for-tat spat has killed hopes of getting a foothold any time soon.
“Once you lose a customer, it’s hard to get it back,” Gina Tumbarello, American Feed Industry Association, director of international policy and trade, told Bloomberg Law. “I see it snowballing and having an even more detrimental effect,” she said. “The tariff issue isn’t just about tariffs it’s about our relationship with China.”

RAW MATERIALS
The pet care industry is also getting hit with higher packaging and equipment costs as a result of President Donald Trump’s steel and aluminum tariffs. “Our members have seen their packaging costs go up commensurate with the tariffs,” Tabor told Bloomberg Law.
The steel tariffs are also impacting equipment purchases by pet food companies, he said. Pet Food Institute member companies include Blue Buffalo Co. in Wilton, Conn, Cargill in Wayzata, Minn., Hill’s Pet Nutrition in Topeka, Kansas and The J.M. Smucker Co. in Orrville, Ohio.
American Can Manufacturers Institute member companies, including CROWN Holdings, Inc., Silgan Containers, and Ardagh Group sell cans to pet food manufacturers, American Can Institute President Robert Budway told Bloomberg Law.
These companies have seen increased prices for steel and aluminum that could get passed on to pet food companies. What’s more, the Commerce Department process allowing manufacturers to seek exclusions from tariffs has stopped because of the partial government shutdown.