China threatens ‘necessary’ retaliation to tariff hike

Dive Brief:

  • A spokesperson for the Chinese commerce ministry threatened “necessary countermeasures,” according to The Wall Street Journal, after the promised increase in the U.S. tariff rate on $200 billion in Chinese imports from 10% to 25% was published in the Federal Register.
  • The Notice of Modification in the Federal Register states the Office of the U.S. Trade Representative (USTR) will establish a process where businesses may request to be excluded from the tariffs — an option not offered on the list in question when 10% tariffs went into effect in September 2018. “USTR will publish a separate notice describing the product exclusion process, including the procedures for submitting exclusion requests, and an opportunity for interested persons to submit oppositions to a request,” reads the Federal Register.
  • New York Times analysis laid out what retaliation China might take. Possibilities include resuming the import barriers on American soybeans (which were suspended in December with the now-dead truce) and targeting tariffs at imports that could hurt Trump politically. Non-tariff retaliation like delaying imports in ports or slowing down the supply chains of private American companies that rely on Chinese parts to manufacture their products are also possibilities.

Dive Insight:

Negotiations resumed in Washington Thursday and though tensions have certainly flared this week, the fact that talks are going ahead means both sides still see merit in coming to the table.

Economists say retaliatory tariffs from China likely won’t have a significant effect on the U.S. economy, because the U.S. imports much more from China than China imports from the U.S.

Where U.S. businesses are likely to feel the hit of Chinese retaliatory tariffs is in agriculture. Trump’s tweet Sunday sent grain markets to a 42-year-low.

The American Soybean Association (ASA) called the current situation, with tariffs set to increase, the “worst case” for U.S. soybean growers in a press release issued Tuesday. As agricultural exports to China in 2018 dropped nearly 30% year over year, net farm income fell by nearly 10%, according to Newsweek.

“After so many threats and missed deadlines for concluding negotiations, this ongoing uncertainty is unacceptable to U.S. farmers,” Davie Stephens, president of the ASA and a grower himself, said in a statement. “With depressed prices and unsold stocks forecast to double before the 2019 harvest begins in September, we need the China market reopened to U.S. soybean exports within weeks, not months or longer.”

Stephens added soybean farmers have displayed “great patience” with the administration, but that “patience is wearing thin.”

The Ag Economy Barometer, a measure of sentiment in the agriculture industry developed by Purdue University, showed farmer sentiment in April at its lowest point since the trade war began — notably before President Trump’s surprise tweets Sunday announcing the tariff hike.

A key USDA report will be released Friday detailing how much corn and soy is currently in storage around the world.

“It’s hard to see what could come as bullish from this report, which should show ample stocks in plenty of major export countries,” said Jacob Christy, a trader at The Andersons, in a Thursday morning video report. Ample stocks would indicate lower demand for exports and therefore lower prices in yet another hit to U.S. producers.

09 May 2019 | Emma Cosgrove | Supply Chain Dive