In response to President Trump’s trade offensives, China is planning to implement tariffs on key agricultural exports like soybeans, sorghum, and live hogs – a move that will disproportionately affect states that voted for Trump.
Retaliatory plans were laid out last month during a meeting between China’s Commerce Ministry and Chinese companies that import significant amounts of US farm products.
Some experts believe China will resort to “harsher measures in their arsenal,” reports The Wall Street Journal, such as “diverting large orders for aircraft and other goods away from US manufacturers and slowing the wheels of bureaucracy in approving operating licenses, or even targeting US companies with antitrust investigations.”
In February, China launched an unsolicited anti-dumping/anti-subsidy investigation into US sorghum imports. The investigation could result in high taxes on sorghum, which could prompt sorghum traders to buy Chinese-grown corn instead.
China buys about 90% of its sorghum from the US, which it uses to make livestock feed and baijiu (a popular Chinese liquor). US sorghum exports to China in 2017 were worth about $1 billion.
China’s probe on sorghum came two months after the US launched a similar probe into Chinese aluminum alloy sheet, which is commonly used in solar panels (which Trump is also taxing).
“It’s already a partial trade war,” admits Li Qiang, chief consultant at Shanghai JC Intelligence Company. “In our opinion, this is related to the deterioration in the Sino-US relationship.”
At the same time, China has hinted at easing restrictions on foreign investments in insurance companies and securities firms and allowing US companies better access to China’s markets. Western officials are skeptical of the offer, however, pointing to several past promises that turned out to be nothing more than lip service.
“On Wednesday, the People’s Bank of China said foreign companies would be allowed into China’s fast-growing market for electronic-payment services, but didn’t make clear whether they will be allowed to do so without a Chinese joint-venture partner,” reports WSJ.
China’s stick-and-carrot approach follows President Trump’s tariffs on steel and aluminum, which take effect this Friday, as well as a proposal to tax up to $60 billion in Chinese imports.
The second tariff, which could affect tech, telecoms, and apparel, is a response to China’s policy of requiring US businesses to transfer technology to Chinese partners. The Trump Administration has also accused Beijing of intellectual property theft and claims that China improperly subsidizes companies in strategic areas in order to give them an edge over US rivals.
Author’s Note: China’s response to Trump’s tariffs is a stark example of how quickly trade can get political. Trump is a great negotiator, but as you can see here, there is always risk involved. I would expect more of this sort of thing to happen before we see a reduction in the trade deficit with China.