WAUSAU, Wisconsin — Paul Hsu, a Taiwanese-born U.S. ginseng company owner, is retiring after 44 years of building his business in Wausau, Wisconsin, leaving the country’s largest ginseng company by sales, Hsu’s Ginseng Enterprises, to his son Will. But during the transition, his company may be facing its hardest challenge yet due to the intensified trade war between the world’s two largest economies.
“The way I see it, the situation now is more difficult than when I started the business over 40 years ago,” the 76-year-old chairman and founder told Nikkei Asian Review on July 2, the first day of his retirement.
The trade spat between the U.S. and China is not just about high tech and manufacturing. The scope of the war has also quietly reached agriculture, with both countries wanting to protect their own farmers.
On April 1 this year, Beijing announced plans to slap up to 25% tariffs on 128 U.S. agricultural goods, totaling some $3 billion of exports, ranging from fruits, wine, and ginseng to pork. The move was retaliation for Washington’s decision to impose high tariffs on Chinese steel and aluminum on March 23. The tariffs were made effective the following day.
U.S. ginseng, which attracted 7.8% tariffs before April, is now facing 22.8% duty after adding the additional 15% announced by the Chinese government. Hsu’s Ginseng, which commands a 40% market share in the U.S. and 10% in the Chinese market, is feeling the pressure.
“China’s move is a precise hit on us. The surging cost is going to weaken our already struggling competitiveness and market share in China,” Hsu said during a tour of five of his 14 farms, covering 400 hectares in rural Wausau.
U.S. ginseng, which takes at least five years from seed cultivation to harvest, is considered the most premium product and tops the average selling price in the industry, as the soils in some areas of Wisconsin’s Marathon County are rich in minerals as the result of glacial retreat. The price of four-year-old American ginseng roots can range from $6,000 to $7,000 per barrel, 50% higher than Canadian ginseng and even more expensive than the Chinese product.
China, with more than 2,000 years of history of eating ginseng roots, is the world’s largest market. U.S. ginseng once accounted for 90% of global market share, with annual production of 1.1 million to 1.4 million kilos in the 1980s, but China and Canada have expanded their production capacity since the late 1980s. Global ginseng production now reaches between 4.5 million and 5.9 million kilos per year, while U.S. ginseng has fallen to about half a million kilos. Last year, U.S. ginseng exports were valued at about $30 million, with China the biggest buyer.
Marathon County used to have more than 1,300 ginseng growers back in the 1980s, but now there are only around 150 left, Hsu said.
The Chinese government’s increased tariffs on American ginseng is not only a retaliatory measure against the U.S., but also aimed at protecting the Chinese product, according to Hsu. “I am worried that the new tariffs would hurt exports and eventually employment at the farms in the longer term.”
Will Hsu, who took the helm of Hsu’s Ginseng following his father’s retirement, said the average selling prices of U.S. ginseng were at least 15% higher in the Chinese market after the tariff increase. “Imagine how much more room that would give for Chinese ginseng to stretch their market share in the Chinese market?” he said, worrying that consumers would turn to cheaper substitutes.
Knowing that competing on price with the Chinese and Canadian products is not the solution, Hsu’s company is developing new ginseng-infused products and aiming at a specific customer profile in China, those that only look for the best ginseng goods. Collaboration with Hon Hai Precision Industry, also known as Foxconn Technology Group, could also be a big help in regaining U.S. ginseng’s market share in Asia.
Foxconn, the world’s largest contract manufacturer, announced a $10 billion investment agreement in July 2017 to build a high tech manufacturing complex in Wisconsin, in the wake of President Donald Trump’s call of bringing manufacturing back from Asia. The Taiwanese company said the project would create 13,000 jobs, with an average annual salary of $54,000, and change the economic landscape of Wisconsin.
Foxconn approached local ginseng growers, including Hsu’s Ginseng, soon after the investment decision last year, as the company was looking for opportunities to export other U.S. products to overseas markets. “Terry Gou [Foxconn chairman] said he’s really interested in American ginseng after talking with my father for just five or six minutes,” the younger Hsu said.
The tech manufacturer established a brand, Hong Seng, to sell premium ginseng products in Asian markets supplied by members of the Ginseng Board of Wisconsin, including Hsu’s Ginseng. Foxconn’s “M” subgroup, which oversees the company’s healthcare-related business, is operating the brand.
Gou is an effective brand ambassador for U.S. ginseng products, ranging from ginseng roots, slices, tea bags, ginseng essence, to ginseng-infused spirits and beer. He has publicly said many times that he and his family have been consumers of U.S. ginseng for a long time.
Gou, who spent the weekend in Wausau visiting Hsu’s farms with his family right after the groundbreaking ceremony for the new plant in June, said that Foxconn could work with the grower to improve production with new technology, such as automation for washing, screening and selecting ginseng roots, according to Paul Hsu.