President Donald Trump’s trade war with China ramped up this week, with both Trump and China President Xi Jinping refusing to yield. Trump and Xi appeared to be willing to climb the tariff ladder together, with no ceiling in sight, but then Xi announced Friday, after raising tariffs again, that they were as high as they would get. He made it clear, though, that he wasn’t backing down and that tariffs were already high enough to make U.S. products unmarketable in his country. Chinese importers of most U.S. goods will be required to pay a 125% tariff, while U.S. importers of most Chinese goods will be stuck with 145% duties.
The escalation of the trade war will basically lock the U.S. dairy industry out of the Chinese market for now, just when demand for dairy is expected to increase and milk production continues to fall, said Betty Berning, analyst with the Daily Dairy Report. China is the U.S. dairy industry’s third largest market by value, accounting for 7% of total dairy exports last year.
In February, milk production in China fell for the seventh straight month. CN Agri data showed that milk collections were 6.1 billion pounds in both January and February, with year-to-date output down 9.2%, compared to January and February 2024. Despite falling milk production, milk prices in China also fell, down 15 % in February relative to February 2024, according to RaboResearch. And skim milk powder production in January and February plummeted more than 30% compared to the same months in 2024.
“In 2018, China announced a modernization plan to increase milk production across the country and reduce its dependency on dairy imports,” Berning noted. “From 2018 to 2023, volumes grew rapidly, up 27%, or 24.7 billion pounds, and, by all accounts, the effort was a success. However, the nation has also sought to increase dairy consumption, but that endeavor has been less successful.”
According to Italy’s CLAL, China’s per capita milk consumption in 2023 was 25.6 lbs. “That is woefully less than per capita consumption in the rest of the world,” Berning said. “Growth in dairy consumption in China has not kept pace with gains in milk production. But in mid-2024, an oversupply of milk pushed prices lower, and the industry began culling cows, widening the gap between consumption and production.”
Consumption growth in China has been slow for several reasons. First, Berning said, many Chinese are lactose intolerant, which is why milk historically has not been a staple of the Chinese diet and why adoption is slow.Second, demand for infant formula has fallen due to declining birth rates, and the retail cost of dairy is also a factor in China’s volatile economy.
“Less milk from China seems likely to continue, at least for now. If dairy consumption takes off as Beijing hopes, more imports will be required until the country’s domestic supply can rise to meet demand. However, due to escalating tensions between the United States and China, these products would likely come from countries that China has a free trade agreement with—not from the United States,” she said.
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