The objective of this study is to analyze the economic impact of Chinese retaliatory tariffs on California’s economy using the Input-Output model. Our model uses state level Impact Analysis for Planning (IMPLAN) dataset along with data from the United States Department of Agriculture-Foreign Agricultural Service (USDA-FAS), California Department of Food and Agriculture, and County Ag Commissioner’s reports. The analysis focuses on the implications of the retaliatory tariffs by China in a scenario where the demand from other alternate export markets does not change. The results show that the tree nut industry’s total output decreases by about 14% and 10% in the short-run and long run period respectively when compared to the baseline scenario. The tree nut sector would be employing about three thousand people lesser than the baseline scenario in the short-run period and about two thousand people in long-run period, which is equivalent to 7% in the short-run and 5% in the long-run period. The study concludes that it is very important for the US and China to resolve their trade disputes as quickly as possible in order to bring confidence not only to the tree nut industry in California, but hundreds of other industries that have been impacted by this trade war.
In April 2018, the Chinese government has imposed tariffs on various US products, which included 93 agricultural products in retaliation to US tariff actions on Chinese products [
The Chinese retaliatory tariff of about 15% on tree nuts imported from the United States is bound to impact the California’s economy where tree nuts are significant in terms of gross farm value and employment generation. Almond industry alone creates almost 100,000 jobs in the state of California [
The objective of this study is to analyze the economic impact of Chinese retaliatory tariffs on California’s economy, where tree nut (almonds, walnuts, pistachios) industry is concentrated. Along with analyzing the economic impact on producers, this study also focuses upon the impact on the overall economy of the state of California. The analysis focuses on the implications of the retaliatory tariffs by China in a scenario where the demand from other alternate export markets does not change. In other words, this study assumes all the other export market factors that can impact the export demand for tree nuts are held constant. This study analyzed the impact using the Input-output model. The model uses state level Impact Analysis for Planning (IMPLAN) dataset along with data from the United States Department of Agriculture-Foreign Agricultural Service (USDA-FAS), California Department of Food and Agriculture (CDFA), and County Ag Commissioner’s reports to show significant economic and employment shifts in the state of California. Next Chapter explains the importance of California’s tree nut industry followed by description of methodology and the IMPLAN model in Section 3. The results are discussed in Section 4 and the last section concludes with model limitations and policy recommendations.
Tree nuts like almonds, pistachios and walnuts generate about one-sixth of the farm revenue in California. About $7.3 billion worth of tree nuts has been exported from California in the year 2017 [
The tree nut industry plays an important role in California agriculture. According to a study sponsored by the Almond Board of California, the almond industry alone contributed about $21.5 billion in economic output which includes direct, indirect and induced outputs. The same study estimated that about 104,000 jobs are generated by almond industry, of which 68,000 jobs are due to almond farming including direct, indirect and induced jobs associated with almond
| $ Millions | Total Exports | ||
|---|---|---|---|
| 2015 | 2016 | 2017 | |
| Almonds | 5143 | 4497 | 4483 |
| Pistachios | 848 | 1145 | 1518 |
| Walnuts | 1485 | 1342 | 1370 |
| Exports to China | |||
| Almonds | 529 (10%) | 518 (12%) | 501 (11%) |
| Pistachios | 178 (21%) | 531 (46%) | 663 (44%) |
| Walnuts | 144 (10%) | 78 (6%) | 64 (5%) |
Source: CDFA annual reports, 2018 [
farming, and the remaining 36,000 jobs are associated with the direct, indirect, and induced economic activity of the processing and manufacturing sectors [
Another important tree nut grown in California is walnut, which ranks as seventh most important crop in terms of value. The total walnut cash receipts for 2017 is about $1.6 billion in 2017 [
The tree nut industry contributes to the economy in different ways. Production of tree nuts, handling and processing of tree nuts and manufacturing of products based on tree nuts can be considered as three different ways by which tree nut industry generates economic activity and creates jobs in the Central Valley of California (
This study uses an economic impact analysis, focusing on the export value of California’s tree nut industry in 2017 in terms of its output, value added, and employment to test the hypothesis that retaliatory tariffs imposed by China will have a negative impact on California’s economy in many sectors. In the first
step, we employ a quantitative analysis to simulate possible changes in trade values due to the retaliatory tariff rates applied by China on US tree nuts industry. We utilize statistical relationship between the California’s economy and tree nut exports in short run and long run. Production values, export, and demand and supply elasticities for selected tree nuts are collected for the simulation from USDA-FAS, California Department of Food and Agriculture, and Commodity Board reports. The elasticities show the percentage change in U.S. supply or employment that occurs from a one percent change in U.S. tree nuts export prices in either the short-run or long-run period.
Input-output model is applied in the IMPLAN (Economic Impact Analysis for Planning) software, which utilizes county and state level data to assess the effects of economic activities. IMPLAN combines publicly available industry output and employment data, etc. We add scenario simulation results into IMPLAN to determine the impact that tree nuts exports have on California’s economy. IMPLAN model reports the direct, indirect, and induced effects. The direct effects are the primary economic activities measured that are impacted by the reduction in exports. The primary activities impact associated input industries such as chemicals, equipment and materials used in producing and handling tree nuts. IMPLAN data specify these effects through multipliers which are called as indirect effects. The model further traces the effects of changes in employment and total industry income which indicates the induced effects of the primary and associated economic activities in the state economy [
The IMPLAN model calculates multipliers based on consumption or production activities of each stakeholder in the regional economy [
| Total Economy | Tree Nut Industry | |
|---|---|---|
| Employment | 23,572,469 | 43,066 |
| Total Output ($ billions) | 4428 | 8.47 |
| Total Value Added ($ billions) | 2769 | 4.94 |
Source: IMPLAN Database, 2017 [
employment, which is the change in the number of jobs (both full-time and part-time); and the impact on output, which is the change in the total spending; and the impact on value-added as the return to resources used by the industries. Since the labor income effect is a subset of value added measure, we did not report them in the result section. Because of the reduction in production levels of pistachios in the rest of world during 2017-18, the US pistachio exports to China did not get affected in the year 2018-19. In fact, there was a slight increase in the imports from the US GAIN Report [
The price or revenue loss to almonds and walnuts due to retaliatory tariffs by China are shown in
The results of the input-output analysis are shown in
| Exports to China 2017-18 (million lb) | Exports to China 2018-19 (million lb) | Change in Exports to China (million lb) | As a % of Total Supply | % Change in Price (Calculated) | |
|---|---|---|---|---|---|
| Almonds | 158.6 | 106.6 | −67.2 | −2.01 | −4.16 (short-run) |
| −3.01 (long-run) | |||||
| Walnuts | 19.3 | 7.4 | −4.7 | −3.57 | −23.3 (short-run) |
| −18.4 (long-run) |
Source: Data from Almond Board [
| Short-run Period | Long-run Period | |
|---|---|---|
| Employment | −7585 | −5166 |
| Direct Effect | −2997 | −2041 |
| Indirect Effect | −2634 | −1794 |
| Induced Effect | −1953 | −1330 |
| $Millions | ||
| Total Output | −$1179 | −$803 |
| Direct Effect | −$602 | −$410 |
| Indirect Effect | −$245 | −$167 |
| Induced Effect | −$332 | −$226 |
| Total Value Added | −$729 | −$496 |
| Direct Effect | −$350 | −$238 |
| Indirect Effect | −$173 | −$118 |
| Induced Effect | −$206 | −$140 |
is much smaller. Due to the direct effect, the total output decreased by 7% in the short-run and 5% in the long run period. Similarly, due to direct, indirect and induced effects, the Total Value Added (TVA) decreased by $729 million in short-run period and by $496 million in the long-run period. If we take only the direct effect on tree nut industry, the TVA decreased approximately by 7% in the short-run period and 5% in the long run period compared to the baseline scenario.
The employment generated by the economy of California would be lesser then the baseline period by 7585 jobs in short-run period and by 5166 jobs in the long-run period. It is important to observe that the direct impact on tree nut industry is lesser then the indirect and induced impacts on the other sectors of the economy. The tree nut sector would be employing about three thousand people lesser than the baseline scenario in the short-run period and about two thousand people in long-run period, which is equivalent to 7% in the short-run and 5% in the long-run period.
The retaliatory tariffs imposed by China would impact the California’s tree nut sector significantly. The results show that the tree nut industry’s total output decreases by about 14% and 10% in the short-run and long run period, respectively. The results also indicate that the employment in the industry would reduce 7% in the short-run and 5% in the long-run period. Our study is bound by a few limitations, some of which are associated with the usage of the IMPLAN software. The limitations of IMPLAN are that the model is static, which means the relationships in a given year do not change and are not affected by impact runs. The model operates on constant returns to scale and no supply constraints built into it. Along with listed IMPLAN based limitations, our study also utilizes elasticity estimates from studies published a few years back. Revised estimates of elasticity would definitely capture the latest consumer attitudes towards tree nut consumption.
The study shows that the sum of indirect and induced effects on the total economy of California is much higher than the direct effects on the tree nut industry. As China is a major market, if the retaliatory tariffs continue or worsen over the time, the tree nut industry in California would have to look for alternative export markets in order to sustain and preserve its role in the agricultural sector of California. It is also important to understand that the consumers in China are also going to be impacted due to higher prices of tree nuts and their products due to the retaliatory tariffs. The implications of such a scenario can be manifold. There might be a lot of rerouting of China bound shipments to Hong Kong, as importers might want to utilize the informal trade routes that exist between Hong Kong and China, thereby bypassing the tariffs. We witnessed that many Californian traders have finalized their deals earlier than usual as the retaliatory tariffs were in place for some time. They might have escaped the tariffs this year, but if they persist, this ploy may not work again. If the tariffs persist or increase in the future, consumers in China would be subjected to higher prices in the future or shift to alternatives products to tree nuts as there is no other major country that can take the place of the US as top tree nut exporter. For the US based exporters, presently the markets of EU and India are providing alternatives to Chinese market, however, India is also enacting higher retaliatory tariff regime for tree nuts recently. Therefore, in this highly volatile and unstable trading scenarios, it is very important for the US and China to resolve their trade disputes as quickly as possible in order to bring confidence not only to the tree nut industry in California, but also to hundreds of other industries that have been impacted by this trade war.
The authors declare no conflicts of interest regarding the publication of this paper.
Konduru, S. and Asci, S. (2019) A Study of the Chinese Retaliatory Tariffs on Tree Nuts Industry of California. Theoretical Economics Letters, 9, 2747-2755. https://doi.org/10.4236/tel.2019.98172