How the US-China trade war is impacting the American pet industry

The trade war between the US and China is now impacting many industry sectors. In the US also, the downside of protectionist measures is being felt by the pet industry. 

In a globalised world, everybody is impacted

Although international trade is essential to the development of all major economies, as cross-border commerce increases, so does its inherent complexity. The current trade tensions between the US and China illustrates this reality. These nations are pursuing policy actions designed to achieve overarching strategic intentions. However, a vast number of sectors, operators, and actors – with no ties to the primary objective – are being impacted as a result. 

Most US pet industry participants were slow to react when the import tariffs were implemented. Their initial perception was that an agreement would be struck before things escalated. Many companies assumed they would be granted exemptions, only to see their applications denied. A year on, industry participants are facing the facts and taking actions that impact end consumers. 

Sharing the costs of import tariffs

The most visible action has been the apportionment of costs. Companies have sought to lessen the impact of raised tariffs by passing on price increases to retailers and end customers, while seeking favourable deals with suppliers. Success has been mixed and is directly tied to a product’s utility, brand value proposition, and a company’s importance to outsourced manufacturers. Higher prices are expected to result in lower unit volume in non-essential categories. 

Many companies have sought to move production to tax advantaged countries, or to move final assembly to more 

favourable locations. While this is a sensible strategy, achieving new country of origin designations can be difficult. Larger organisations with greater control over their supply chains are better situated to achieve success. 

US pet companies hit the hardest

Companies that source in long-lead time categories or rely on their supply chain to finance working capital through extended payment terms, are experiencing pressure to become current on their trade balance. Already, Chinese insurance entities are enforcing duration limitations, reducing capital availability for US buyer entities. 

While the implications to the US pet industry have centred on imports, the impact of lost export opportunities cannot be ignored. China represents the largest market opportunity for expansion in the pet supplies category. The current trade tensions make it difficult – to impossible – for US brands to access this growth. The longer the status quo endures, the harder it will be for US export franchises to catch-up.

Blue
Author

Bryan Jaffe

Managing director Food, Beverage & Agribusiness