Chinese tariffs having minimal effects on U.S. hemp industry, experts say

Most American farmers are in full-fledged panic mode following news that companies in China have suspended use of U.S. agricultural products in response to tariffs imposed by the Trump administration on Chinese goods.

But the nascent U.S. hemp industry shouldn’t worry, economists and trade experts told Hemp Industry Daily.

A $5.9 billion market, China is one of the largest buyers of U.S. agricultural products, following Mexico, Canada and Japan. But China may stop importing agricultural products altogether – and impose tariffs on goods it has already purchased – in response to the new tariffs.

Currently there is minimal direct effect of the Chinese tariffs on the U.S. hemp industry, given that hemp trade coming from the U.S. is virtually non-existent, according to Brian Cheng, general partner at The Arcview Group in San Francisco.

“While hemp seeds and true hemp products (hemp biomass) are on the list of products affected by the tariff, neither account for a significant amount,” Cheng told Hemp Industry Daily.

In 2017, China sent about $3.3 million worth of hemp to the U.S., according to Hemp Industry Daily’s 2018 Hemp & CBD Factbook. That made China a distant second to Canada, which exported roughly $58 million of hemp to the U.S. that year.

The majority of hemp imports into the U.S. are hempseeds coming from Canada, while hemp imports from China are harder to track, Cheng said.

“There is no cannabinoid market in China, so the hemp farmers and businesses serving the cannabinoid market (in the U.S.) have no business export to China,” he said.

“The industrial usage of hemp is satisfied by domestic production of hemp in China. Thus, the tariffs will have no effect on U.S. hemp producers and businesses.”

Switch to hemp production

Row-crop farmers of traditional products like soybeans are harder hit by uncertain global markets and falling prices, and many have shown they are ready to move toward growing more profitable alternative crops, according to Bob Hoban, president and founder of Denver-based cannabis law firm Hoban Law Group.

The Chinese tariffs are the last straw, he told Hemp Industry Daily.

“I see the tariffs that have been imposed as it relates to China as a very beneficial thing for U.S. hemp farmers, or at least for U.S. farmers that would like to pivot to industrial hemp,” Hoban said.

Processing hit

While the China trade war may not have an immediate direct effect on hemp farmers, those in the business looking to source lower-cost processing equipment from China will likely see a negative impact from the tariffs, according to Jim Parco, founder and co-owner of CBD company MesaOrganics and Purplebee’s in Pueblo, Colorado, who also teaches economics and business at Colorado College.

“China is very good at manufacturing equipment, particularly the types of systems that we need to process hemp, and the U.S. just hasn’t developed the same kind of manufacturing expertise that China has,” Parco told Hemp Industry Daily in an email.

Among those companies is Fibonacci, a Kentucky manufacturer of hemp-derived wood products that had to pay a 25% tariff on an industrial wood press from China. The company is appealing the tariff.

Depending on the type of equipment, Hoban said, hemp processors can source equipment from manufacturers in the European Union at comparable prices to lower-cost Chinese equipment.

“I look at the European Union as having some of the best industrial hemp technologies that exist,” Hoban said.

“What they don’t have in Europe is access to the U.S. market. So there are favorable deals to be had with limited tariff impact that puts you in the same ballpark with probably better technology by sourcing from Europe.”

Cheng said that in addition to equipment, the indirect immediate effects of the tariffs will include increased costs on imported accessories used for making hemp products like cigarette papers and other manufactured extracts and packaging.

Ongoing tariffs could also impede the growth of the industry when hemp-derived extracts or industrial hemp export markets become more active in the future, Cheng said.

Parco agreed, saying the tariffs are increasing costs to U.S. producers “artificially in hopes of future gains.”

“Whether or not that materializes remains an empirical question,” Parco said. “But what is known is that the harms of increased costs today are real losses for the small businesses who are struggling at building this new industry.”

Laura Drotleff can be reached at [email protected]