Research
Upping the ante: The impact of China’s reciprocal tariffs on global lactose and whey trade
China’s new 34% tariff on US imports could impact dairy trade, particularly US exports of dry whey and lactose. The EU and UK may step in, altering market dynamics.
The US exports more than 50% of its dry whey and lactose production, with China as the largest buyer. On April 10, in response to the Trump administration’s recent escalation of the global trade war, China will introduce a 34% reciprocal tariff on all imports from the US. The intensifying trade conflict between these two major trading partners could lead to shifts in lactose and whey trade, with potential export opportunities for Europe, Oceania, and South America. However, due to its competitive pricing, some US lactose will likely still find a market in China. US dry whey and permeate exports to China, on the other hand, are likely to fall significantly, with domestic US prices for these commodities also declining. The trade war could result in lower prices for US dairy producers, slimmer margins for traders, and higher prices for Chinese end users and consumers.
The RaboResearch publications The impact of US tariffs on global food and agribusiness and The impact of escalating trade disruptions on global food and agribusiness foreshadowed the recent escalation in the global trade war, which has largely pitted the US against the rest of the world.
The US has increased its global dairy trade, with China as a major buyer
The US dairy sector has experienced significant growth in global trade, with exports increasing from less than 2% of US milk production in the early 2000s to nearly 20% in recent years. However, US exports of dry whey, including whey permeate, and lactose are disproportionately exposed to global markets, with over 50% of domestic production sold overseas, with China being the largest buyer.
On April 2, President Trump announced a new 34% tariff on Chinese imports into the US (which has since been pushed up to 84%). In response, China announced a 34% retaliatory tariff on all US goods arriving in China. Given China’s current reliance on the US dairy industry for certain products, these new retaliatory tariffs, on top of China’s existing (albeit low) tariffs, beg the question: Can China find a replacement for US lactose, dry whey, and whey permeate?
US lactose may still find a market in China, albeit with less volume and lower domestic prices
The US dominates global lactose trade. In 2024, it exported 409,000 metric tons (mt), accounting for 58% of worldwide sales, which totaled 701,000mt. The EU-27+UK followed with 247,000mt of sales outside of the UK and European trading bloc, accounting for 35% of global trade.
Meanwhile, China is by far the largest lactose importer. In 2024, Chinese imports totaled 152,225mt, accounting for 43% of global trade, with the US and the EU-27+UK representing 72% and 22%, respectively, of China’s lactose imports. US lactose exports to China tallied nearly 110,000mt, while the EU and UK supplied about 33,000mt.
In the wake of China’s retaliatory tariffs against the US, could Europe supplant the US as the largest lactose exporter to China? The EU-27+UK exported 274,000mt of lactose globally in 2024. Minus the 33,000mt sent to China, that leaves, in theory, 214,000mt to replace the 110,000mt currently sourced from the US.
However, over half of the EU and UK’s lactose exports to China are priced at levels two to three times higher than US lactose, reflecting a higher quality of lactose for use in food and pharmaceutical applications rather than in animal feed. Furthermore, according to Trade Data Monitor, the per unit value of European lactose exports to destinations receiving more than 20,000mt annually ranged from USD 1,183/mt to USD 1,918/mt. In stark contrast, China imported US lactose at an average price of USD 834/mt. Thus, even with a 40% tariff (the 6% preexisting tariff plus the new 34% retaliation) some US-sourced lactose may still be competitively priced compared to European lactose and may still find a home in China. In 2019, for example, China implanted a 25% retaliatory tariff on US imports as part of a broader response to tariffs initiated during the first Trump administration. That year, US lactose exports fell by 33% compared to the prior year.
The US exports more than 50% of its dry whey and lactose production, with China as the largest buyer. On April 10, in response to the Trump administration’s recent escalation of the global trade war, China will introduce a 34% reciprocal tariff on all imports from the US. The intensifying trade conflict between these two major trading partners could lead to shifts in lactose and whey trade, with potential export opportunities for Europe, Oceania, and South America. However, due to its competitive pricing, some US lactose will likely still find a market in China. US dry whey and permeate exports to China, on the other hand, are likely to fall significantly, with domestic US prices for these commodities also declining. The trade war could result in lower prices for US dairy producers, slimmer margins for traders, and higher prices for Chinese end users and consumers.
The RaboResearch publications The impact of US tariffs on global food and agribusiness and The impact of escalating trade disruptions on global food and agribusiness foreshadowed the recent escalation in the global trade war, which has largely pitted the US against the rest of the world.
US dry whey and whey permeate also face downside risks
China’s dominance in the global whey market (HTS code #0404) is unparalleled, accounting for over 65% of global trade. Again, China and the US are one another’s largest trading partners. China represents 40% of US whey exports and the US accounts for 45% of China’s imports, with the EU-27+UK supplying 35%. As with lactose, there could be an opportunity for Europe to increase its dry whey exports to China.
When China implemented its 25% retaliatory tariff on US imports in 2019, the US dry whey market felt the brunt of this retaliation. At the time, China was also dealing with declining swine production due to an outbreak of African swine fever, resulting in lower whey and lactose exports to China for animal feed. In turn, in 2019 US dry whey and permeate exports fell by 55% to less than 60,000mt. The domestic dry whey price in the US dropped more than 35%, from USD 1,050/mt to USD 660/mt, and the Class III milk price declined by USD 1.05/hundredweight.
RaboResearch expects the US dry whey and corresponding milk markets to respond similarly to China’s new retaliatory tariffs in 2025, with the potential for more downside risk, given that the tariff is more punitive – totaling 36% as of April 10, 2025 – and because the US is experiencing an increase in production due to expanding cheese and whey production capacity.
In summary, the trade war is likely to cause significant adjustments in the global lactose, dry whey, and permeate trade routes. As a result, RaboResearch expects lower prices for US dairy producers, slimmer margins for traders, and higher prices for Chinese end users and consumers.
April 9, 2025: This article has been updated to reflect the 50% additional tariff the US imposed on China on April 8, raising the initial 34% country-specific tariff up to 84%.