China Fires Back Again As Trade Tensions Escalate
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April 4, 2018 Volume 14, Number 14 China fires back again as trade tensions escalate 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 its 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. Soybean farmers are one of 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 www.Agri-Pulse.com 1 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 that the industry “regrets that the Chinese government chose to target U.S. soybeans in retaliation for trade sanctions.” The group noted that U.S. soybean farmers communicated their concerns about tariffs to the U.S. Administration and counseled them “to seek other means to remedy the concerns regarding trade.” At the same time, they urged the Chinese government to remove duties imposed on U.S. soybeans and all U.S. products “to demonstrate China’s commitment to reducing the trade imbalance between the U.S. and China and its desire to ‘make the cake of economic cooperation bigger’ as President Xi has suggested.” 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.” US-China trade aggression threatens rice deal U.S. rice farmers and millers are close to overcoming one of the final obstacles blocking access to China’s massive import market, but there isn’t much celebrating going on. That’s because the two countries have come to the brink of an all-out trade war and it's looking like rice trade may become just one more casualty. “After more than a decade of work to achieve U.S.-grown rice access to the enormous Chinese market, we could finally see the finish line, and now a trade war could set us back years,” Betsy Ward, president and CEO of the USA Rice Federation, told Agri-Pulse. “The flip side is that were China to allow U.S.-grown rice in, it would be a first small step to balancing the trade deficit.” On Monday, China slapped $3 billion worth of tariffs on a list of 128 U.S. products like pork, oranges, cherries, almonds, plums and ethanol. (For the full list of products and tariffs, read this FAS Gain Report here.) This retaliation came on the heels of new U.S. global tariffs on steel and aluminum imports, a small percentage of which come in from China. Whether the U.S. and China can prevent further escalation is unclear, but it’s looking like it will get worse before it gets better. That’s because the Trump administration didn’t stop with the steel and aluminum tariffs. On March 22, President Donald Trump signed an order to impose about $50 billion in tariffs solely on Chinese goods in order to punish China for years of www.Agri-Pulse.com 2 intellectual property theft and forced technical transfers. And then on Wednesday, the Chinese fired back with plans to impose a 25 percent tariff on $50 billion of U.S. goods. None of these tariffs, whether they are meant to deal with China’s over-production of steel or the country’s theft of intellectual property, have anything to do with rice trade, and it’s still possible that the process of gaining access to the Chinese market may move forward. U.S. rice farmers have been after China to allow in U.S. rice for more than a decade and it seemed that real progress was finally being made last summer. In July, during the first Comprehensive Economic Dialogue between the two countries in Washington, China finally signed off on the sanitary and phytosanitary protocols needed to allow in U.S. rice. “This is another great day for U.S. agriculture and, in particular, for our rice growers and millers, who can now look forward to gaining access to the Chinese market,” USDA Secretary Sonny Perdue said at the time. “This market represents an exceptional opportunity today, with enormous potential for growth in the future.” China consumes about 144 million tons of rice every year and is the world’s largest rice- producing and importing country. As part of the deal China struck when it joined the World Trade Organization in 2001, the Asian nation agreed to take in at least 2.7 million tons of U.S. rice each year. Still, there has been no trade because of China’s past refusal to approve the protocols. China, in what was widely expected to be a part of the final phase in lifting its ban on U.S. rice just a few months ago, sent a 10-page questionnaire to USDA’s Animal and Plant Health Inspection Service (APHIS), and then the agency passed copies to the U.S. rice mills that export to China. The mills labored to fill out the dense questionnaires that many felt were far too intrusive, according to rice industry sources. Some of the questions dealt with a mill's export history, records of phytosanitary inspections and inspections of raw materials used by a mill. Despite the reservations of rice producers, the questionnaires have been mostly completed and they are expected to be turned in to USDA's APHIS soon. After that, it will be up to China to decide whether the process moves forward. Under the best possible scenario, China will scrutinize the responses and then choose some or all of the mills to visit in order to verify that they meet the country's sanitary and phytosanitary standards. Historically, the U.S. and China have been able to quietly continue conducting what are seen as mostly technical-level talks on issues, unaffected by more splashy, high-stakes political battles, but it’s unclear if that will be the case with rice. “The question is, can our technical experts continue the quiet relationship or does it all get caught up in the politics of this trade fight?” said one trade official who asked not to be named. Bobby Hanks, chairman of the USA Rice International Trade Policy Committee and CEO of Supreme Rice LLC, is concerned that rice exports could be a casualty of a trade war. "Our industry is at the end-game of providing detailed information to Chinese authorities about the approximately 30 facilities registering to ship U.S.