China is starting its retaliation against U.S. steel and aluminum tariffs today, announcing it is imposing its own tariffs on a list of 128 U.S. products that are mostly farm commodities.

The People’s Daily, a newspaper controlled by the Chinese government, reports that China is immediately slapping $3 billion worth of tariffs on U.S. fruit, nuts, pork, wine and other products in what the U.S. ag sector sees as the next step in an escalation of trade aggression on both sides.

U.S. pork exports are the largest commodity by value on the list of products – the U.S. exported $237 million worth of pork to China last year - according to a copy obtained by the group Farmers for Free Trade.

The U.S. also exports hundreds of millions of dollars of almonds, pistachios, cherries, oranges, plums and other products to China, all of which are on the list.

“This is a tax on American farmers, brought about by protectionist trade policies," said Max Baucus, co-chair of Farmers for Free Trade. “American farmers appear to be the first casualties of an escalating trade war. With farm incomes already declining, farmers rely on export markets to stay above water. These new tariffs are a drag on their ability to make ends meet.”

It was on March 23 that China first unveiled its threat of retaliation, proposing tariffs of 15 to 25 percent on U.S. products. China made it clear that it did not want to use the tariffs, but would if the U.S. did not change course on its steel and aluminum levies.

“China does not want a trade war with anyone,” China said last month in a  statement released by its embassy in Washington. “But China is not afraid of and will not recoil from a trade war. China is confident and capable of facing any challenge. If a trade war were initiated by the U.S., China would fight to the end to defend its own legitimate interests with all necessary measures. The actions undertaken by the U.S. are self-defeating. They will directly harm the interests of U.S. consumers, companies, and financial markets. They also jeopardize international trade order and world economic stability.”

Soybean farmers are the most vulnerable to Chinese retaliation because they depend on that market to buy about $14 billion worth of the crop every year.

China has not hit U.S. soybean exports with a tariff yet, but there is widespread fear that will happen soon in response to the Trump administration’s latest “section 301” tariffs to punish Chinese theft of intellectual property.

Purdue University researchers, at the behest of the U.S. Soybean Export Council, took a look at some possible outcomes if China retaliated against new U.S. tariffs by hitting its soybean exports.

The researchers modeled what would happen if China imposed tariffs on U.S. soybeans ranging from 10 percent to 30 percent, and the results are not pretty.

Under the best-case scenario – a 10 percent tariff – U.S. exports to China would fall by a third, causing overall U.S. soybean production to drop by 8 percent. In the event of a 30 percent tariff, the researchers say U.S. exports to China would fall by 71 percent and total U.S. soybean production would decline by 17 percent.

“This could be the calm before the storm,” Baucus said. “While $3 billion in retaliatory tariffs is a major hit, the retaliation expected on agriculture from the 301 trade action could be broader and deeper. Now is the time to deescalate both the trade rhetoric and actions that have brought us to a point where American farmers are being targeted.”

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