The fallout from US China tariff spat

By Aerin Einstein-Curtis

- Last updated on GMT

© iStock
© iStock
Short-term implications of China’s newly proposed 25% tariffs on soybeans, sorghum and several other products may be making market waves, but long-term considerations also bring concerns, says economist.

The back-and-forth tariff imposition may bring long- and short-term considerations for feed grain production and future markets, said David Widmar, a researcher with the Center for Commercial Agriculture at Purdue University.

“A tariff is a tax on goods coming from a different country,” ​he told FeedNavigator. “One would use a tariff to encourage production of the good somewhere else.”

However, adding a tariff or tax on a specific product, like soybeans or a feed ingredient, also increases the domestic cost of that product because a new source has to be found, he said. “The second impact of the tax is it increases the cost of the product that consumers are buying,” ​he added.

On Wednesday, US feed grain producers appeared more concerned with the short-term implications for feed commodity prices and producers. Members of several producer organizations for feed grains covered by the proposed 25% tariffs spoke out against the steps taken by China and called for the Trump administration to resolve the situation.

The proposed tariff on imported sorghum will hurt both sorghum producers and China’s consumers, said the National Sorghum Producers (NSP). The tariff brings financial burden and comes at a time when the sorghum industry is facing an anti-dumping and countervailing duty investigation from China.

“The proposed tariffs are not immediate and the timing of possible additional tariffs remains uncertain,” ​said Don Bloss, NSP chairman. “But the financial toll on our producers is already taking place with this morning’s widespread market reaction to the announcement by the Chinese government.”

Sorghum producers saw a similar drop in prices and increase in market uncertainty after the administration imposed tariffs on the import of Chinese solar panels and washing machines in February, he said. “Trade wars are not good for anyone, and we urge President Trump and other negotiators to take a constructive approach in the ongoing negotiations that do not threaten more harm to US sorghum producers,”​ he added.

China buys more than half of US sorghum exports, the association said.

Similarly, soybean producer organization the American Soybean Association (ASA), which has been warning about the potential for trade retaliation, also called for action from the administration. The Chinese market accounts for about 61% of all US soybean exports or about 30% of the total production.

“It should surprise no one that China immediately retaliated against our most important exports, including soybeans,” ​said John Heisdorffer, ASA president. “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.”

“This is no longer a hypothetical, and a 25% tariff on US soybeans into China will have a devastating effect on every soybean farmer in America,”​ he said. Futures prices for soybeans dropped almost $0.40 at the start of the day, which amounts to about $1.72bn in total crop value for producers, he added.

“But there is still time to reverse this damage, and the administration can still deliver for farmers by withdrawing the tariffs that caused this retaliation,” ​he said. “China has said that its 25% tariff will only go into effect based on the course of action the administration takes. 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.”

Tariff spat details

The most recent round of potential tariffs from China came after a series of tariffs issued by both countries.

On Tuesday, the US announced it was moving forward with plans​ to implement tariffs on about 1,300 Chinese products or about $50bn in goods – the list includes medical products, machinery, parts and nuclear reactors. The decision came after a determination by the Office of the US Trade Representative that China uses unreasonable or discriminatory practices and policies when dealing with US companies in areas related to technology transfer, intellectual property and innovation.

However, there is some delay before the tariffs would start as a public hearing for businesses to comment on the proposals is set for May 15.

In response, China said on Wednesday that it would be implementing a 25% on $50bn worth of US goods or about 106 products, according to information​ from the Ministry of Commerce. The list​ includes soybeans, some corn products, beef products and sorghum imports.

It is unclear at what point those tariffs would start to be applied to agricultural and other products.

Longer-term tariff implications

If the tariffs are imposed, feed grains could be purchased from a source that is less expensive than what the added tax would be, but the expectation is they will still be more expensive than the original price of the product before the tariff was put in place, said Widmar.

“When China puts a tariff on soybeans from the US, they basically raise the price on soybeans from the US,” ​he said. “It encourages production from somewhere else.”

In the short-term, it could mean that Chinese buyers look for alternative products or reduce their use, he said.The addition of a tariff on a feed ingredient like soybeans also has several long-term implications. 

“It encourages production in other parts of the world,” ​he said. And, it could mean that in 10-15 years production has shifted to establish or support another or a new producer, he added.

“You have to look at it piece-by-piece,” ​he said. “Whether it’s a direct or indirect market response it’s going to [have implications].”

Looking to NAFTA

The most recent Ag Barometer report​ had answers collected in the third week of March and recorded a good deal of uncertainty about international trade, both with China and the progress of the renegotiation process with the North American Free Trade Agreement (NAFTA), said Widmar.

When asked specifically about how likely they thought US agriculture was at risk for a trade war that led to a major decrease in feed grain and agricultural exports about a quarter of the respondents said they were uncertain what it would mean, he said. Almost half said they the saw the potential as “likely.”

Additionally, about 36% of producers said they were not sure when asked how likely they thought it was that the US would withdraw from NAFTA, he said.

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