In the latest salvo of trade actions between the U.S. and Chinese governments, the Chinese Ministry of Commerce (MOC) announced plans today to impose a 25 percent tariff on $50 billion of U.S. goods, including soybeans, corn, beef, frozen orange juice and whiskey, according to the Chinese News Agency, Xinhua. The Commerce Ministry said the tariff would be imposed on 106 items of products under 14 categories – but the date of implementation will depend on when the U.S. government imposes tariffs on Chinese products.
The latest announcement from China comes after the Trump administration announced in late March that about $3 billion in steel and aluminum tariffs would be put in place to protect national security. Although several countries would be impacted, the target was clearly China - the largest global producer of steel and aluminum. On Monday, China returned fire by imposing similar measures on $3 billion worth of U.S. pork, fruit, wine, nuts and other items.
Then on Tuesday, the U.S. Trade Representative published a list of 1,300 Chinese exports, worth about $50 billion, that could be hit with a 25 percent tariff to punish the Asian giant for stealing U.S. trade secrets, intellectual property and innovation. Written comments on the proposal are due May 11 and the Section 301 Committee will convene a public hearing on this proposal at the U.S. International Trade Commission on May 15. But the Chinese didn’t waste any time firing back with the same level of tariffs. And this time the Chinese broadened their aim at U.S. agriculture, adding soybeans into the mix.
The Ministry of Commerce (MOC) said in a statement Wednesday that the U.S. move was "an evident violation of relevant rules of the World Trade Organization (WTO)." The U.S. move "severely infringed on the legitimate rights and interests that China enjoys in accordance with the WTO rules, and threatened China's economic interests and security," the MOC said.
In a statement Wednesday morning, American Soybean Association President John Heisdorffer reacted with disappointment, but the Iowa farmer was hardly shocked by the news.
"It should surprise no one that China immediately retaliated against our most important exports, including soybeans," he said. "We have been warning the administration and members of Congress that this would happen since the prospect for tariffs was raised. That unfortunately doesn't lend any comfort to the hundreds of thousands of soybean farmers who will be affected by these tariffs."
Soybean farmers are among the most vulnerable to Chinese retaliation because they depend on that market to buy about $14 billion worth of the crop every year. Purdue University researchers, at the behest of the U.S. Soybean Export Council (USSEC), took a look at some possible outcomes if China retaliated against new U.S. tariffs by hitting its soybean exports. 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.
USSEC said it has been "an active supporter and investor in of China’s goals of sustainable food security and food safety. Despite being an active supporter of these goals, China has U.S. soybeans placed on a list of commodities that could be targeted with a 25 percent retaliatory duty.
"We regret that the Chinese government has made this decision. Duties on imported soybeans will negatively impact not only U.S. soybean farmers and exporters but will also negatively impact the Chinese soy processing, animal producers and consumers." USSEC urged both sides to come to a successful conclusion that "leads to neither side imposing duties that would have a debilitating impact on our respective economies."
Heisdorffer estimated that the drop in commodity prices on Wednesday morning caused a $1.72 billion loss in the value of the 2018 soybean crop.
"That's real money lost for farmers, and it is entirely preventable," he added. Heisdorffer said the Trump administration should withdraw the tariffs "that caused this retaliation.
"China has said that its 25 percent tariff will only go into effect based on the course of action the administration takes," he said. "We call on President Trump to engage the Chinese in a constructive manner - not a punitive one - and achieve a positive result for soybean farmers."
Max Baucus, a former U.S. senator and ambassador to China who now co-chairs Farmers for Free Trade, said the impact of the tariffs would go beyond just production agriculture.
"Cotton, soy, sorghum, beef and the other commodities China has targeted are at the heart of the American agricultural economy," Baucus said. "These commodities support not only farmers, but entire rural communities. A 25 percent export tax on these commodities into our second largest agricultural export market will hurt farmers, but also harvesters, processors, truck drivers, rail workers, and main street businesses that rely on a strong agricultural economy."
Many commodity analysts also hope that cooler heads will prevail and that this global “war of words” will result in more robust trade negotiations and eventually settlements. But for now, the Trump administration is showing no signs of backing down on the potential for tariffs. Indeed, the Trump administration appears to be working on ideas for compensating farmers who may be harmed by China’s retaliatory tariffs on U.S. commodities, including soybeans, pork, nuts and fruit. Talking to reporters during a tour yesterday in Michigan, Agriculture Secretary Sonny Perdue says the plan will send a signal to China, but he wasn’t ready to offer specifics.
“We’re discussing that right now, but I’m not at liberty to talk about those kinds of things from a mitigation perspective,” Perdue said. “And at the proper time we will let China know they will not be able to affect our agricultural policies and our political decisions over trade by … holding agriculture hostage.”
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(Story updated at 10:00 a.m. to include reaction from the American Soybean Association.)
(Story updated at 11:15 a.m. to include reaction from Farmers for Free Trade.)