84% TARIFF SHOCK: How the US-China Trade War Will Reshape Your Dairy Business

125% tariffs slam US dairy exports to China—whey markets collapse, global trade reshaped. Can farmers adapt?

EXECUTIVE SUMMARY: The US-China trade war has escalated to prohibitive 125% tariffs on US dairy, crippling exports of whey and lactose—products that relied heavily on China’s market. With US dairy prices plummeting and surplus inventory flooding domestic markets, competitors like New Zealand and the EU are seizing China’s demand through free-trade agreements. Meanwhile, China faces a paradox: its own dairy production is contracting, yet tariffs block affordable US imports, forcing reliance on pricier alternatives. Global supply chains are scrambling as the US redirects exports to Mexico and Southeast Asia, intensifying competition. The USDA slashed 2025 milk price forecasts, signaling long-term pain unless farmers pivot to value-added products and diversified markets. This crisis exposes the fragility of over-reliance on geopolitically volatile trade partners.

KEY TAKEAWAYS:

• Prohibitive 125% tariffs have effectively closed China to US dairy, collapsing exports of whey (42% of US sales) and lactose (72% market share).
• New Zealand and EU dairy giants gain dominance in China via free-trade deals, while US surpluses depress domestic prices and strain global markets.
• China’s milk production dropped 9.2% in early 2025, yet tariffs lock out US suppliers—creating opportunities for competitors despite weaker Chinese demand.
• USDA forecasts lower milk prices (-35¢/cwt for Class III) as trade wars disrupt $584M in exports, forcing urgent shifts to Mexico/SE Asia markets.
• Survival requires diversification: Farmers must explore risk tools, value-added products, and lobby for trade policies to prevent permanent market loss.

The numbers are staggering. The implications are far-reaching. And if you’re a US dairy producer, processor, or exporter, the escalating trade war between the United States and China will fundamentally alter your business landscape—much like when a severe mastitis outbreak hits your highest-producing string of fresh cows.

In just the past 75 days, we’ve witnessed a dizzying series of tariff escalations that have effectively shut the door to China for US dairy exports. What began as a 10% Chinese tariff on US dairy products in March has exploded into prohibitive rates of 84% to 125% by mid-April. The result? The third-largest market for US dairy exports—worth $584 million in 2024—vanished overnight, leaving producers with the dairy equivalent of a bulk tank with nowhere to unload.

But let’s be brutally honest here: this isn’t just another trade spat that will blow over with the next administration or diplomatic breakthrough. The current conflict accelerates structural shifts that permanently reshape global dairy trade flows, competitive dynamics, and market opportunities. Understanding these changes isn’t just academic—it’s essential for your farm’s survival and prosperity in the years ahead, as critical as knowing your somatic cell count or feed-to-milk conversion ratio.

The Tariff Avalanche: How We Got Here

The rapid escalation of trade tensions between the world’s two largest economies has followed a breathtaking trajectory in early 2025:

Date	Action	Effective Rate
February 4, 2025	Trump reinstates 10% tariff on Chinese imports	10%
March 4, 2025	US increased tariffs to 20%	20%
March 10, 2025	China retaliates with a 10% tariff on US dairy products	10%
April 3, 2025	Trump declares “Liberation Day” with 34% tariff on Chinese imports	34%
April 4, 2025	China matches the 34% retaliatory tariff on all US goods	34%
April 9, 2025	US increases tariffs to 104% on Chinese goods	104%
April 10, 2025	China retaliates with 84% tariff; Trump raises US tariffs to 125%	84-125%

Is this what “winning” a trade war looks like?

By mid-April, the cumulative impact created an effective total tariff on US dairy exports to China ranging from 84% to 125%, depending on the specific product and pre-existing base rates. While President Trump announced a 90-day pause on new tariffs for most countries on April 9, this notably excluded China, maintaining the heightened trade barriers.

The Chinese government has bluntly stated that at the 125% tariff level, US goods are “no longer marketable” in their country. This isn’t hyperbole—it’s economic reality, as stark as a 100-pound drop in production when your TMR mixer breaks down during peak lactation.

Why This Time Is Different (And Worse)

Veterans of the dairy industry might recall the 2018-2019 trade tensions when China imposed 25% retaliatory tariffs on US dairy. That was painful enough, causing US dry whey exports to China to plunge by 55% and lactose exports to fall by 33%.

But today’s situation is dramatically more severe for three critical reasons:

1. The tariff rates are exponentially higher – 84% to 125% compared to 25% in 2018-2019, like comparing a mild case of milk fever to a full-blown displaced abomasum
2. US production capacity has expanded since the previous dispute, meaning more product needs to find alternative homes, similar to when you’ve developed your herd but your milk hauler suddenly cuts back on pickups
3. China’s domestic dairy industry is contracting after years of expansion, creating a vacuum that US suppliers can’t fill due to tariffs, akin to watching your neighbor’s prime hay ground go fallow when your silage bunker is running low

The April 9 Daily Dairy Report highlighted that “milk production in China fell for the seventh straight month in February,” with year-to-date output down 9.2% compared to early 2024. Milk prices in China fell 15% in February compared to a year earlier, and skim milk powder production plummeted more than 30% compared to the same months in 2024.

This contraction would usually create significant opportunities for global exporters—but US suppliers are effectively locked out by prohibitive tariffs, while competitors with free trade agreements (particularly New Zealand) enjoy duty-free access, much like watching your neighbor’s herd get premium contracts while your milk gets downgraded.

And here’s what industry leaders aren’t saying loudly enough: our over-reliance on China as an export market was a strategic mistake from the beginning. Did we think a country with fundamentally different political and economic systems would remain a reliable trade partner indefinitely? The warning signs have been flashing for years, yet we continued building processing capacity targeting Chinese demand.

The Whey and Lactose Crisis: Your Immediate Concern

For US dairy, the most immediate and severe impact centers on whey and lactose exports, where dependency on the Chinese market was extraordinarily high:

Product	2024 Export Value to China	Projected 2025 Decline	Historical Precedent (2018-2019)
Whey	Major portion of $584M	55–70%	55% drop under 25% tariff
Lactose	110,000 metric tons	40–60%	33% drop under 25% tariff
Cheese	Small but growing	Significant	Minimal impact in prior disputes

When 72% of China’s lactose imports came from the US, where do you think that product will go now?

These aren’t just statistics—they represent billions of pounds of milk solids that now need to find alternative markets or be absorbed domestically, creating significant downward price pressure. It’s like suddenly losing your highest-paying milk market and shipping to a processing plant that pays $3 less per hundredweight.

HighGround Dairy warned in their analysis of February production data: “Dry whey output tanked in February to the lowest volume for the month since the start of the century, yet stocks continued to build. Ultimately, trade wars will dictate the direction of this market.”

That direction is now clear—and it’s downward. The historical precedent from 2019 showed domestic dry whey prices dropped more than 35% following similar (though less severe) trade disruption. With higher current tariffs, the price impact could be even more dramatic, like comparing a minor mastitis flare-up to a full-blown coliform outbreak.

Ask yourself this: how much longer can your operation absorb these market shocks without fundamentally rethinking your business model?

USDA Already Slashing Price Forecasts

The USDA has already incorporated the trade war’s impact into its latest World Agricultural Supply and Demand Estimates (WASDE) report, significantly lowering its milk price forecasts for 2025.

The Class III milk price was projected at $17.60 per hundredweight, down 35 cents from last month’s estimate. This reduction was explicitly attributed to “anticipated lower cheese and whey prices” from the trade disruption.

The Class IV price forecast was cut even more dramatically, down 60 cents to $18.20, reflecting expected weakness in butter and nonfat dry milk markets.

These aren’t just paper forecasts—they represent real money from your milk check in the months ahead, as tangible as watching your bulk tank readings drop during a summer heat wave.

And let’s be clear: the industry’s traditional response of “produce more to make up for lower prices” will only exacerbate the problem this time. The USDA has already raised its milk production forecast, citing larger cow inventories and slightly higher milk per cow. More milk with fewer export outlets is a recipe for even lower prices.

Winners and Losers: The Global Dairy Reshuffling

While US dairy faces significant challenges, the trade disruption creates clear winners and losers across the global dairy landscape:

The Winners

New Zealand: As the dominant supplier with duty-free access via its FTA, New Zealand is perfectly positioned to capture displaced US volume. Strong Chinese demand has supported record NZ milk prices, and Fonterra reports increased sales to China leading into 2025. It’s like getting the first cut of prime alfalfa for New Zealand dairy farmers while US producers are left with weather-damaged hay.

European Union: The EU is expected to gain a share in whey and lactose markets, leveraging its existing presence. However, modest milk production growth forecasts (around 0.5-0.8% for 2025) and potentially higher prices for certain products may be constrained by its ability to replace US volume fully.

Australia: Benefitting from its FTA with China, Australia has increased dairy exports, particularly cheese and skim milk powder, and is positioned to gain market share.

The Losers

US Dairy Farmers: Lower domestic commodity prices, particularly whey and lactose, will translate directly into reduced milk checks. The USDA’s downward revision to milk price forecasts is just the beginning, like watching your component premiums disappear month after month.

US Processors: Companies heavily invested in whey and lactose processing face significant challenges finding alternative markets for displaced volume. This could lead to reduced plant utilization, lower margins, and potential restructuring—similar to when a processing plant suddenly institutes a base program that caps your production.

Chinese Food Manufacturers: Prohibitive tariffs on US dairy significantly increase costs for Chinese food manufacturers and feed producers who rely on these imports. This forces them to seek alternative suppliers, potentially leading to higher input costs if alternatives are more expensive or less readily available.

The hard truth? The industry’s obsession with China as the solution to all our export needs has exposed us dangerously. While our competitors were busy negotiating free trade agreements, we were content to operate without such protections. How many more market disruptions will it take before we demand better trade policies?

The Mexico Lifeline: Your New Best Friend

With China effectively closed, Mexico takes on heightened strategic importance for US dairy exports. Already the largest market for US dairy by value, Mexico’s significance will only grow as exporters seek to redirect displaced volumes.

The good news? Despite the otherwise tenuous trade environment for other US destinations, relations with Mexico appear to be on solid footing. The USMCA provides a stable framework for continued market access, though competition will intensify as more suppliers target this critical market.

For US dairy farmers and processors, cultivating and strengthening relationships with Mexican buyers becomes more important than ever. This isn’t just about maintaining current business—it’s about expanding market share in a region crucial to absorbing displaced volumes from China. Think of it like developing a strong relationship with your nutritionist or veterinarian—it pays dividends when challenges arise.

But here’s the question no one’s asking: are we about to make the same mistake with Mexico that we made with China? Becoming overly dependent on any single export market leaves us vulnerable. Smart operators are already looking beyond Mexico to diversify their risk.

Beyond the Trade War: China’s Evolving Dairy Landscape

While the tariff situation dominates headlines, it’s essential to understand the broader context of China’s evolving dairy market, which influences both its import needs and sourcing strategies.

The Lactose Intolerance Factor

One fascinating aspect highlighted in the Daily Dairy Report is that “Many Chinese are lactose intolerant, which is why milk historically has not been a staple of the Chinese diet and why adoption is slow.”

This biological reality helps explain why per capita dairy consumption in China remains far below global averages despite significant production increases in recent years. Studies show lactase deficiency affects approximately 38.5% of Chinese children aged 3-5, with rates as high as 87% in teens.

Metric	Jan-Feb 2025	YoY Change	Implication for US Dairy
Milk Production	6.1B lbs	-9.2%	Rising import dependency
Skim Milk Powder Production	-30%	—	Opens gap for competitors
Lactose Intolerance Rate	87% (teens)	—	Limits fluid milk demand

We’ve been pushing fluid milk in a country where most people can’t digest it. How’s that for market research?

It’s similar to how Jersey cows and Holsteins have fundamentally different characteristics and needs—what works for one population doesn’t necessarily work for another. As a dairy farmer adjusts feeding strategies for different breeds, marketers must adapt product offerings to suit the biological realities of different consumer populations.

Yet our industry continued pushing fluid milk consumption in China despite these biological limitations. Wouldn’t our resources have been better spent developing and marketing lactose-free dairy products specifically designed for this market?

Demographic Headwinds

China’s declining birth rate has fallen from 13.03 births per thousand people in 2013 to just 6.39 in 2023, impacting infant formula demand. Combined with economic headwinds, including a real estate crisis, high youth unemployment, and weak consumer confidence, these factors have dampened overall dairy consumption growth.

These structural limitations mean that even if the trade war were resolved tomorrow, China’s dairy market would still face significant long-term challenges that limit its growth potential—much like how a dairy farm might face production limits due to land constraints, water availability, or labor shortages regardless of milk price.

Strategic Responses: What Smart Dairy Businesses Are Doing Now

The current trade disruption demands immediate strategic responses from all segments of the US dairy industry. Here’s what forward-thinking businesses are implementing:

For Dairy Farmers

1. Explore risk management tools to protect against price volatility, including futures, options, and forward contracting—as essential as having a good vaccination protocol for your herd
2. Communicate with processors about product mix changes that may affect component valuations—just as you’d consult with your nutritionist about ration adjustments
3. Consider USDA support programs that might offset trade-related losses—similar to enrolling in Dairy Margin Coverage when margins tighten
4. Evaluate feed costs in light of potential tariff impacts on grain markets (the WASDE maintained corn price forecasts at $4.35 per bushel but adjusted soybean meal down $10 to $300 per short ton)—as critical as monitoring your feed-to-milk conversion ratio

For Processors

1. Accelerate development of alternative export markets to replace lost Chinese volume, focusing on Mexico, Southeast Asia, and Latin America—like a farmer diversifying forage sources when alfalfa prices spike
2. Evaluate product mix adjustments to reduce dependency on China-oriented commodities—similar to adjusting your breeding program when market signals change
3. Assess capital investment plans in light of potential long-term market access changes—as prudent as reconsidering that parlor expansion when milk prices drop
4. Develop closer relationships with customers in reliable markets less subject to trade disruption—just as farmers build relationships with reliable feed suppliers and service providers

For Industry Organizations

1. Continue advocating for policy solutions while preparing for prolonged trade barriers—like how dairy co-ops advocate for favorable policy while helping members navigate market realities
2. Support market development initiatives in alternative regions—similar to how breed associations promote genetic improvement while adapting to changing market demands
3. Provide market intelligence to help members navigate rapidly changing conditions—as valuable as a good DHI testing program
4. Facilitate information sharing about adaptation strategies across the industry—like the knowledge exchange that happens at producer meetings and field days

But let’s be brutally honest: these are band-aid solutions to a gaping wound. The fundamental problem is that we’ve built an industry increasingly dependent on export markets without securing the trade agreements necessary to protect that access. Until we address this core issue, we’ll continue lurching from one trade crisis to the next.

The Cheese Bright Spot: Diversification Pays Off

While the whey and lactose markets face severe disruption, the cheese sector offers a more positive outlook, highlighting market diversification’s value.

US cheese exports globally hit a record high in 2024, exceeding 500,000 metric tons (+17% year-over-year). While China is not a top-tier market for US cheese compared to Mexico or Canada, exports to China showed surprising strength in early 2025 before the tariff spike (up 649% in February 2025, though likely from a small base).

The CME cheese markets have shown remarkable resilience despite the broader trade tensions. Block cheddar climbed to $1.7450 per pound by April 12, up 10.50 cents on the week and 21 cents above a year ago. Barrels reached $1.8050, 14.50 cents higher and 23.25 cents above a year ago.

This resilience underscores a critical strategic lesson: diversification across products and markets provides crucial insulation against geopolitical disruptions. Processors heavily dependent on single commodities or markets face disproportionate risk in today’s volatile trade environment—just as dairy farmers who diversify their income streams (through crops, custom work, or value-added products) weather milk price volatility better than those solely dependent on conventional milk sales.

The question is: why aren’t more dairy operations following this diversification model? The evidence is clear that putting all your eggs in one basket—whether a single export market or a single commodity product—is increasingly risky in today’s geopolitical environment.

The Long Game: Structural Shifts in Global Dairy Trade

Beyond the immediate market impacts, the US-China trade conflict is likely to accelerate fundamental structural changes in global dairy commerce:

1. Regional Trade Bloc Strengthening

The volatility of US-China relations pushes dairy trade toward more predictable regional blocs. The USMCA (North America), EU internal market, and RCEP/CPTPP (Asia-Pacific) may take precedence over truly global trade optimization. This suggests a more fragmented global dairy landscape in the years ahead, similar to how regional milk marketing orders create different pricing structures across the US.

2. Value-Added vs. Commodity Focus

The vulnerability of commodity-dependent export models has been starkly exposed. This will likely accelerate investment in value-added products and stronger B2B relationships that are more resistant to tariff disruptions. The strategic push toward exporting more value-added products like cheese, less vulnerable than bulk commodities, takes on increased importance—much like how selling breeding stock or show animals can provide higher margins than commodity milk production.

3. Supply Chain Resilience Over Pure Efficiency

The trade conflict highlights the risks of extended, complex global supply chains optimized solely for cost efficiency. Companies throughout the value chain will likely prioritize resilience, diversification of suppliers and markets, and robust risk management strategies, potentially at the expense of maximum short-term cost efficiency—similar to how prudent dairy farmers maintain feed reserves even when it ties up capital or invest in backup generators despite the cost.

4. Permanent Sourcing Shifts

China’s reduced reliance on the US as a supplier may permanently alter global dairy trade flows. Once supply chains are reconfigured and relationships established with alternative suppliers, they rarely revert completely, even if tariffs are eventually reduced—just as when a milk processor loses a customer to a competitor, regaining that business is far more difficult than maintaining it would have been.

The uncomfortable truth? Our industry has been too slow to adapt to these structural shifts. While individual operations might be nimble, our collective response through cooperatives, processors, and industry organizations has often been reactive rather than proactive. How many more market disruptions will it take before we fundamentally rethink our approach to global markets?

The Dairy Futures Paradox: Markets Sending Mixed Signals

One of the most fascinating aspects of the current situation is the conflicting signals from dairy futures markets. StoneX noted in their analysis: “The level of skepticism on any market strength, be it spot or futures, is rather staggering these days. And for good reason, as worries over demand and liquidity continue to plague outside energy and equity markets.”

CME markets have displayed particularly puzzling behavior, with spot prices for cheese and butter sometimes rallying against bearish fundamental news (tariffs, negative WASDE reports). At the same time, futures reflected broader concerns or specific commodity weakness (whey).

This disconnect highlights the extraordinary uncertainty in today’s market and the challenges of using traditional price discovery mechanisms in a trade environment dominated by geopolitical factors rather than fundamental supply-demand dynamics—not unlike how a dairy farmer might see contradictory signals between milk futures, feed costs, and heifer prices when making expansion decisions.

But here’s what no one wants to admit: our price discovery mechanisms are increasingly disconnected from market realities. When spot markets move in the opposite direction of fundamentals, how can producers make informed decisions? It’s time to question whether our current pricing systems are still fit for purpose in this new environment.

Conclusion: Adapting to the New Reality

The escalating trade conflict between the United States and China represents a fundamental challenge to established global dairy trade patterns. With tariffs reaching prohibitive levels, US dairy exports to China—particularly whey and lactose—face effective market closure, forcing significant volume redirection and creating downward pressure on domestic prices.

These disruptions occur against an already evolving Chinese dairy market backdrop, with domestic production contracting after years of expansion and consumption growth limited by structural factors. The immediate impacts include heightened price volatility, intensified competition in alternative markets, and significant operational adjustments throughout the supply chain.

The trade conflict may accelerate more fundamental changes in global dairy commerce, including strengthening regional trade bloc, increased emphasis on supply chain resilience, and potentially permanent alterations to established trade flows. This new reality demands strategic adaptations from all industry stakeholders, with market diversification, product mix reconfiguration, and robust risk management becoming increasingly critical.

The dairy industry has demonstrated remarkable resilience through previous market disruptions, and the current challenges, while significant, will likely catalyze innovations and adaptations that strengthen its long-term sustainability. However, the path forward requires a clear-eyed assessment of the new trade landscape and proactive strategies to navigate its complexities successfully—much like how successful dairy farmers adapt to changing weather patterns, feed markets, and consumer preferences.

The message for US dairy farmers, processors, and exporters is clear: the Chinese market as we knew it is effectively gone for the foreseeable future. Success will depend on how quickly and effectively you can pivot to alternative markets, adjust product mixes, manage price risk, and build resilience into your business model.

The winners in this new environment won’t be those who wait to return to the old normal—they’ll embrace the new reality and adapt accordingly. As any dairy farmer knows, you can’t control the weather but you can prepare for it. Similarly, we can’t control geopolitics, but we can position our businesses to weather the storm.

It’s time to ask yourself: Are you clinging to outdated export strategies or ready to rethink your approach to global markets fundamentally? The choice is yours, but the clock is ticking. Those who adapt first will have a competitive advantage, while those who wait for the market to “return to normal” may find themselves permanently disadvantaged in this new dairy landscape.

Learn more:

• 84% Chinese Tariffs Slam US Dairy: Why Whey & Lactose Exports Face Crisis
  A deep dive into how China’s 84% tariffs have devastated US whey and lactose exports, with analysis of market fallout and survival strategies for producers.
• Why Milk Prices Already Dropped 12% Before Tariffs Hit
  Explores the preemptive 12% crash in milk prices as tariff threats loom, the risks to US dairy’s top export markets, and what farmers can do to adapt.
• Dairy Caught in Trump’s Tariff Crosshairs as Rollins Teases Trade Deals by Friday
  Covers the immediate impact of Trump’s 104% tariffs, projected multi-billion dollar losses, and practical steps for dairy producers to weather the trade storm.

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