The Maine lobster industry is reeling at the prospect of losing its biggest overseas market.

Industry leaders warn that a proposed 25 percent Chinese tariff on U.S. lobster exports will drive U.S. lobster prices down, causing untold harm to an industry that was counting on China to offset market losses in Europe caused by a trade deal between Canada and the European Union.

When the American lobster industry hurts, Maine’s economy does, too.

“This is going to hurt everybody connected to the lobster industry,” said Annie Tselikis, director of the Maine Lobster Dealers Association. “The lobsterman and lobster dealer, yes, but every single person we do business with. In Maine, that’s almost everybody.”

Last year, Maine fishermen landed $434 million worth of lobster. But that is only a fraction of the industry’s overall value, Tselikis said. A dealer-funded Colby College study calculated that the industry pumps another $1 billion into the Maine economy every year. The lobster industry represents 2 percent of Maine’s gross domestic product, it concluded.

Like many of the agricultural items targeted in China’s latest round of proposed tariffs, the lobster industry is based in rural areas that rely on it almost exclusively for jobs and economic activity.

POSSIBLE 45% PRICE DISADVANTAGE

It’s too early to know if China will follow through on the plan announced Friday to add a 25 percent tax on U.S. lobster beginning July 6, Tselikis said. So far, none of the members of Tselikis’ trade group has reported any Chinese buyers canceling their orders as a result of the tariff announcement, as has been reported by some Alaskan salmon buyers. Monday was, however, a Chinese holiday.

Potentially making matters worse for U.S. dealers is that they might not benefit from elimination of the existing 20 percent and 25 percent lobster tariffs that China had planned to roll back at the end of the month. If the new tariff is implemented, and the old tariff remains on U.S. lobster but is rolled back for Canada, Maine lobstermen will be at a 45 percent price disadvantage with Canada on the very same product, Tselikis said.

Although some Maine academics have suggested a luxury item such as lobster might be immune from the typical market contraction caused by a tariff, Tselikis worries that a 40-45 percent price differential would be too much for even a luxury importer to sell in great volume.

The trade disadvantages facing the industry in China and the European Union could force some dealers, processors and lobster product manufacturers to leave Maine for Canada, which enjoys better trade relationships with the world’s biggest lobster importers, Tselikis said.

Last year, China imported live lobster worth $262.8 million from North America, with Canada supplying 51 percent and the U.S. 49 percent, according to WISERTrade, which collects and aggregates trade data from the U.S. Census. Of the $128.5 million in lobster that the U.S. shipped to China, Maine accounted for about 83 percent.

It’s unclear whether Canada has the capacity to meet China’s growing appetite for lobster on its own. Many here, including Wade Merritt of the Maine International Trade Center, believes that it will take both Canadian and American lobstermen to meet global import demands.

Canada still faces logistical challenges in getting its lobsters to China, which could help the U.S. industry continue to serve at least some parts of the Chinese market, Merritt said. For example, the U.S. continues to ship lobster to Europe despite a 7 percent trade differential.

“There will be bumps in this road, but tariffs are a part of trade,” Merritt said. “Canada has some challenges getting (its) lobster to market that we don’t. They don’t fish year-round, either, so when they’re closed, we are the natural place for China and Europe to turn.”

But unlike the U.S., which has gradually turned away from lobster pounding, Canada has a large supply of stored, or tubed, lobster ready for shipment. The hard-shell lobsters that Canadian fisherman land store longer than Maine’s summer soft shells.

Nobody knows how many lobsters Canadian companies have in private storage, Tselikis said.

If the Chinese tariff remains, Maine dealers will seek to develop other markets, like they always have done to protect themselves against fluctuations in a single market, but none is ready to replace the lost European Union market, much less China, Tselikis said.

INVESTMENT IN A VOLATILE MARKET

Development of the Chinese lobster market didn’t happen overnight, she said. Companies here invested hundreds of thousands of dollars in travel to forge new relationships and learn the intricacies of the Chinese market and consumer tastes.

The Chinese middle class is growing fast, now numbering almost 300 million, and its members have developed a taste for luxury items such as lobster, according to Chinese diplomats who visited Maine in April. But China doesn’t have to get its lobster from Maine, the diplomats warned.

University of Maine research professor Joshua Stoll warned about the potential volatility in the Chinese lobster market, which can be as complicated and risky as it is lucrative. Just ask Norwegian salmon farmers, Stoll said.

When the Norwegian Nobel Committee gave the Peace Prize to Chinese dissident Liu Xiaobo in 2010, Norway’s share of China’s big salmon market collapsed, with shipments delayed for weeks by Chinese safety inspectors who called it an unhealthy fish.

A political dust-up like that could, if applied to American lobster, drive prices down and wreak havoc on Mainers up and down the lobster supply chain, Stoll warned. The market eventually would recover, but it would be painful, he said.

The U.S. domestic market has shown some growth in demand, but almost all of the growth since landings have increased has occurred in export markets, and China and Europe account for 40 percent of lobster exports, Tselikis said.

If the EU and Chinese tariffs stick, the lobster industry will look to the Maine Lobster Marketing Collaborative, its marketing arm, to “seriously move the needle” on consumer demand in the domestic market to focus on volume sales rather than chef appeal, she said.

Penelope Overton can be contacted at 791-6463 or at:

poverton@pressherald.com

Twitter: PLOvertonPPH