In this bonus episode, Ted and T3 tackle tariffs. Specifically, they discuss how the exchange of tariffs between the U.S. and China could impact the American dairy industry.

Ted cites lessons learned during the Great Depression to dispel the notion that policymakers in Washington, D.C. will let the situation get bad enough to spur a similar economic crash.

Episode transcript

Anna: Welcome to "The Milk Check," a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind. We’re back with Part 2 of this month’s discussion. In Part 1, we discussed domestic markets and whether dairy farmers would sell out or stay in the business given the current pricing situation and given where we think prices will go between now and the end of the year. Meanwhile, pretty much any discussion of the world economy is overshadowed by the U.S. and China taking turns slapping tariffs on each other’s exports. T3, get us started. How did this start, and what will it mean for the dairy industry?

T3: Trump announces $50 billion in tariffs on China, which is I think 10% of what China exports to the U.S. China responds with $50 billion in tariffs on U.S. products which, because we export to China so much less than they export to us, amounts to about 50% of our exports to China, and so The Donald deciding that's not good enough, announces another $100 billion dollars in tariffs on Chinese goods. But the part that nobody is talking about is none of that is supposed to take place for another six months. I believe it's another 180 days away.

Ted: One hundred eighty days is right.

T3: So what's gonna happen in the next six months? Well what's gonna happen is that everybody's gonna export as much as possible and get it across that border before the tariffs hit. So one of my concerns about what's going on in terms of international pricing right now, is what they're trying to do is they're trying to beat the tariffs to the finish line, and so we're gonna see really good exports for the next six months. Ironically, even if the tariffs don't come to pass and there's some kind of a settlement, what's gonna happen is everybody's hurrying up now to make sure they've got good inventories before the tariffs hit and then whether they pass or not, six months from now we're probably gonna have a period of about six months where exports are pretty darn poor because of all this rhetoric that's going on today.

Ted: Let's look at it this way. Forget China a minute and let's talk about Mexico, which is our biggest trading partner. Let's suppose that the Mexicans dig in their heels and they say, "We're not gonna buy anything from the United States," okay? First place, I wanna say they're not gonna do that because if there's a quarter of a cent difference, they're gonna buy from wherever it's a quarter of a cent is saved. It doesn't make any difference where it is. Mexicans buy on price and price alone, okay? But anyway, let's just say that the Mexican trade is shut off and it's over. So does that mean all of the sudden, that we're gonna eat all that to business? No. If the Mexicans go out and they choose to buy cheese from Europe, well, Europe's obviously abandoning some of their markets to sell to Mexico and we're gonna wind up selling our cheese somewhere else. Now is it pain-free? No it's not. There may be a few cents a pound cheese difference as all this shuffling occurs and you lose the efficiencies of just going to the neighbor, but it doesn't mean that all of the sudden exports disappear. What it means is, is that you have to reshuffle who's selling who. A good example of that is the Russians. We got into a tiff with the Russians and we embargoed them, and they said, "That's terrific, we'll use it to develop our own dairy industry," which is what they're actually doing over there.