Market Overview

The Struggle Is Real: Lobster Exporters Left Gasping Over Chinese Trade Tariffs

The Struggle Is Real: Lobster Exporters Left Gasping Over Chinese Trade Tariffs

Though conceived with the U.S. trade interests at heart, the problem with the U.S.-China trade war is that at the end of the day, it remains a move that is economically detrimental to both the countries. As tensions rise, hundreds of businesses stand on tiptoe, powerless against the tide of tariffs that wash ashore, with lobster shippers being no exception.

Unlike most other export businesses in the U.S., the lobster trade has been very localized to the region of New England, of which the state of Maine serves as the crustacean's primary bastion. For reference, Maine produces about 120 million pounds of lobster annually, compared to a paltry 25 million from the non-Maine New England states combined every year.

With the lobster trade being caught in the tariff crossfire, its impact on the economy of Maine would only be amplified considering its importance in the state's GDP, which has historically lagged behind in comparison to the other New England states. U.S. Chinese lobster exports have grown exponentially over the last few years, with 2017 raking up $128.5 million in exports, which was thrice as much compared to 2015.

Riding on the back of this lobster market, Maine's export growth has outperformed the country's average export growth over the last few years - a number which is now under threat due to the tariffs. After the U.S. levied extra tariffs on hundreds of Chinese exports, Beijing responded with an added 25 percent tariffs on a number of exports into its country, including live and processed lobsters. U.S. lobster exporters witnessed an overnight pullback on orders, with Chinese buyers looking towards Canada as America's replacement.

Canada meanwhile, has been at the thick of things, as the Trudeau government went ahead and signed trade agreements with the European Union - meaning, lobsters shipped from Canada would be duty-free while  U.S. lobsters face an 8 percent tariff in the EU. For the European lobster importers, it was a no-brainer on the markets they would choose to do business with. On the Chinese front, U.S. lobsters take an even severe beating - overall tariffs on live lobsters stand at 40 percent, and processed lobsters are slapped with a 35 percent tariff, which is multiple folds higher than the 7 percent levied on Canadian lobsters.

As tariffs hit the country out of the blue, lobster farms that had invested in infrastructure to increase production capacity are now gasping for a lease of life. The state of Maine had observed Chinese lobster sales triple in the earlier months of 2018 compared to last year, causing businesses to rush towards expanding their facilities, which now stand paralyzed with the mounting tariffs.

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With the future of China-U.S. trade relations looking bleak, U.S. shippers are looking towards transshipping as a way to circumvent the steep tariffs. A sizeable quantity of the lobsters caught in the New England states are now boxed up and sent to Canada, from where it would make its way to the Chinese shores as a Canadian product. However, this has not gone down well with the Lobster Council of Canada. "Lobster from Maine is coming into Canada and being exported to China. Everybody knows what's happening. Anything that isn't Canadian lobster should not be sold as Canadian lobster," said Geoff Irvine, executive director of the council.

Beyond market dynamics and economic policies that govern them, a lot is transpiring in the ocean waters. Global warming has had a significant impact on lobster fisheries, as the temperature around the Gulf of Maine has risen by over seven times the global average in the last 15 years. Lobsters thrive in colder currents, with warmer waters killing them off rapidly every year.

A warmer ocean would also destabilize the lobster's food chain as copepods, the crustaceans that larval lobsters eat, are vanishing and predators that hunt lobsters are moving farther into the bay. Persisting adverse conditions would be catastrophic to the lobster population, with a study mentioning that the Atlantic lobster harvest would reduce by at least 40 percent by 2050.

And as for the U.S. lobstermen, it is a tightrope walk with the spat between Washington and Beijing on one end and the deteriorating marine conditions on the other end, with no signs of a respite anywhere in sight.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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