Trade war likely to significantly alter global dry whey and lactose trade
China’s new tariff on U.S. imports could impact dairy trade, particularly for dry whey and lactose.
By Mary Ledman, Rabobank Global Sector Strategist – Dairy
The U.S. 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 U.S. The intensifying trade conflict between these two major trading partners could lead to shifts in lactose and whey trade, with potential export opportunities for European Union, Oceania and South America.
However, due to its competitive pricing, some U.S. lactose will likely still find a market in China. U.S. dry whey and permeate exports to China, on the other hand, are likely to fall significantly, with domestic U.S. prices for these commodities also declining. The trade war could result in lower prices for U.S. dairy producers, slimmer margins for traders and higher prices for Chinese end users and consumers.
Two RaboResearch publications – The impact of U.S. 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 U.S. against the rest of the world.
U.S. dairy trade has grown, with China as a major buyer
The U.S. dairy sector has experienced significant growth in global trade, with exports increasing from less than 2% of U.S. milk production in the early 2000s to nearly 20% in recent years. However, U.S. 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 Donald Trump announced a new 34% tariff on Chinese imports into the U.S., which has since been pushed up to 84%. In response, China announced a 34% retaliatory tariff on all U.S. goods arriving in China. Given China’s current reliance on the U.S. 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 U.S. lactose, dry whey and whey permeate?
China may still buy U.S. lactose, albeit at lower volumes and prices
The U.S. dominates global lactose trade. In 2024, it exported 409,000 metric tons (mt), accounting for 58% of worldwide sales, which totaled 701,000 mt. The EU-27+U.K. followed with 247,000 mt of sales outside of the U.K. and European trading bloc, accounting for 35% of global trade.
Meanwhile, China is by far the largest lactose importer. In 2024, Chinese imports totaled 152,225 mt, accounting for 43% of global trade, with the U.S. and the EU-27+U.K. representing 72% and 22%, respectively, of China’s lactose imports. U.S. lactose exports to China tallied nearly 110,000 mt, while the EU and U.K. supplied about 33,000 mt.
In the wake of China’s retaliatory tariffs against the U.S., the question is if Europe could supplant the U.S. as the largest lactose exporter to China. The EU-27+U.K. exported 274,000 mt of lactose globally in 2024. Minus the 33,000 mt sent to China, that leaves, in theory, 214,000 mt to replace the 110,000 mt currently sourced from the U.S.
However, over half of the EU and U.K.’s lactose exports to China are priced at levels two to three times higher than U.S. 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 20,000 mt annually ranged from $1,183 USD to $1,918/mt. In stark contrast, China imported U.S. lactose at an average price of $834/mt. Thus, even with a 40% tariff (the 6% pre-existing tariff plus the new 34% retaliation), some U.S.-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 U.S. imports as part of a broader response to tariffs initiated during the first Trump administration. That year, U.S. lactose exports fell by 33% compared to the prior year.
Dry whey and whey permeate also face downside risks
China’s dominance in the global whey market is unparalleled, accounting for over 65% of global trade. Again, China and the U.S. are one another’s largest trading partners. China represents 40% of U.S. whey exports, and the U.S. accounts for 45% of China’s imports, with the EU-27+U.K. 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 U.S. imports in 2019, the U.S. 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, U.S. dry whey and permeate exports fell by 55% in 2019 to less than 60,000 mt. The domestic dry whey price in the U.S. dropped more than 35%, from $1,050/mt to $660/mt, and the Class III milk price declined by $1.05/cwt.
RaboResearch expects the U.S. 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 U.S. 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 U.S. dairy producers, slimmer margins for traders and higher prices for Chinese end users and consumers.
