What Do Chinese Tariffs Mean For Ag Retail?

As Jim DeLisi explains, whereas the first two tariff rounds did not impact agrochemicals, the third and fourth have many formulations and active ingredients included. ( Margy Eckelkamp )

The Agricultural Retailers Association recently hosted a webinar with Jim DeLisi of Fanwood Chemical, Inc., to explore how the ongoing trade issues with China are effecting the ag retail business. A full recording and webinar slides are available to members here.

Overall, DeLisi highlights that this situation is incredibly fluid and highly specific. 

As DeLisi explains, whereas the first two tariff rounds did not impact agrochemicals, the third and fourth have many formulations and active ingredients included.

In general terms of scope, of the formulated products imported into the U.S., it impacts 1/3 of herbicides, 1/3 of insecticides and about 5% of fungicides that are sourced from China. For active ingredients (AIs), all imported glyphosate, 50% of dicamba, and 50% of 2,4-D is sourced from China. 

The timing and the effect of these tariffs varies product to product and chemistry to chemistry.

He notes Tranche 3, which is a 25% tariff that went into effect on May 10,2019, includes all formulated herbicide, insecticide and fungicide products imported from China, and he gives these top considerations: 

  • Chinese health and safety factory shutdowns have dwarfed the tariff impact. 
  • Also, adequate U.S. supplies have sheltered the major impact of this tariff, but any new deliveries will have the industry “feel the pain.”
  • If the 25% tariff stays in place long, it will motivate more domestic formulations sourced from the U.S. 
  • U.S. Customs is cross checking for any “evaders” trying to bring in formulations but list them on manifests as active ingredients.  

There are a number of active ingredients impacted in Tranche 3, and a list is public, however ARA can help provide that list translated from its 8-digit tariff numbers into individual products.

Also included in Tranche 3 is “an ill-defined number of intermediates.” DeLisi advises that even if materials are labeled as “Made in the U.S.” are indeed made with intermediates sourced from China.  

The tariffs referenced in Tranche 3 were scheduled to increase to 30% on October 1, which was delayed until October 15, and is on temporary hold still. China’s agreement to purchase $40 billion in U.S. agricultural products is part of the reason the tariff increase has been delayed.

Tranche 4 is divided into two steps. 

Put into effect on September 1, Tranche 4a means 15% tariffs for several major AI’s, including 2,4D, Dicamba, Atrazine, and Metribuzin. The tariff for those AIs, imported as formulations, is 25%. 

DeLisi says stakeholders can take action as exception requests for Tranche 4a will be accepted beginning on October 31, 2019 and ending January 31, 2020. 

Tranche 4b is planned to go into effect on December 15, 2019, and it includes a 15% tariff on major AIs such as: glyphosate, glufosinate, PMIDA (glyphosate intermediate), and chlorothalonil.

DeLisi says if Tranche 4b goes into effect, “everything that’s important will be hit by tariffs.” 

As for how detailed these tariffs are being applied, he shares paraquat as an example. 

“If paraquat is imported without emetic, then it is not exposed to the retaliatory tariffs. But you need an EPA label for everything imported, and there are only two companies that have EPA labels to bring in paraquat without the emetics. And that has to be very carefully handled,” he says. 

As for what retailers and other stakeholders can control in this situation, DeLisi shares five tips: 

  1. For retailers directly affected by these tariffs he advises: “In the case of each of these Tranches, please be aware that if exemptions are granted, all importers will benefit from such exemptions, and any duties collected will be refunded. Therefore, prepare your IT systems to keep track of these duties so that you can properly account for any refunds that may be due.” 
  2. He calls out two chemistries that have yet to be impacted: “much of HTS 2933 (heterocyclic compounds with nitrogen hetero-atom(s) only) as well as 2935 (sulfonamides) have escaped these levies.”
  3. “Hunker down” he says as the tariffs aren’t likely to be lifted at all once to ensure China is in complete compliance with any agreement once reached. And likewise, even with an agreement, the tariffs could be reinstated on short notice. 
  4. Manufacturers should be open about how this effects their business with the downstream distribution and customers. Additionally, alternative sources to China should be sought. 
  5. Everyone effected should do reach out to congress and stakeholders and share detailed accounts about how this has an impact on your business. 

ARA members can log in to the members-only section of the website to find the webinar recording, slides and resources, including a full list of the formulations and active ingredients subject to tariffs.