SUMMARY
On Tuesday, April 17th, United States (US) merchant ships carrying $216 million worth of sorghum had to turn back to the US halfway en route to China after the country announced strict news tariffs on the grain. The new People’s Republic of China (PRC) trade law would require importers to pay a 178% tariff on the value of the shipments essentially negating any profit from such a journey. Chinese officials have accused American importers of “dumping” sorghum, meaning they have been selling it well below market price, and harming Chinese farmers. In China, sorghum is used to feed farm animals in addition to being a key component of Chinese liquor, baijiu. China is the US’s top importer of sorghum, bringing in about $1.1 billion last year to domestic exporters.
Following US tariff proclamations 9693 and 9694 in February on Chinese solar panels and washing machines, Beijing began investigating the impact of various imported American products on Chinese industries. Early this week, the US installed a number of new restrictions on Chinese technology companies, including telecommunications company ZTE. Cui Tiankai, the Chinese ambassador to the United States, said that China would not hesitate to retaliate in a Sino-American trade war. Cui warned that such a conflict could lead not only to damaging the relationship between the two superpowers, but also their economies. In 2017, China was the United State’s third largest trading partner, with $130.4 billion, or 8.4% of US exports. At the top two spots were the US’s fellow NAFTA members with Canada’s and Mexico’s with $282.5 billion (18.3%) and $243 billion (15.7%), respectively. Analyst Comment: This is the wrong time for the US to be testing its already fragile relationship with China. As negotiations with North Korea still underway, it is important to keep China, North Korea’s life support and biggest trading partner, on the same page as the United States. Should the Sino-US relationship take too much damage, Beijing might be hesitant to continue encouraging North Korean President Kim Jong-un to cooperate.
Experts say that due to artificial price inflation, the US was able to competitively price its sorghum in China. This has allowed Beijing to target sorghum, a crop that tends to originate from red states in the US, specifically Texas and Kansas – states that went to Trump in the 2016 presidential election. The US Grain Council has called upon President Trump to end the trade war.
In addition to sorghum tariffs, further trade restrictions, including a 25% tariff on soybeans, have been threatened. China analysts say this is likely an empty threat due to the high demand for beans in China. Even talk of changing the majority of its bean imports to South America, which has seen prices jump in response to talk of a US tariff, would not be enough to fill the need. China is currently responsible for buying up about two-thirds of the world’s soybean exports and half of US soybean exports, coming to about $14 billion every year from the US alone. Such a tariff would take a major toll on Chinese and US economies, with one estimating that both countries would lose some $3 billion annually. Analyst Comment: This also affects downstream suppliers of farming products, fertilizers, and related industries that rely on Sorghum derived industries.
FAO GLOBAL ASSESSMENT
This tit-for-tat response could be the beginning of a full-scale trade war between the US and China. If these types of retaliatory measures continue, the American farming industry should expect tougher times ahead. According to the Farm Credit Administration, China was the second largest US agricultural importer in 2017. This key market brought in almost $20 million last year, and its loss would be sorely felt. Red states, where many farmers reside, may blame President Trump if this negatively affects their livelihood. Much of Republican support is dependent upon a strong economy. If the rural economy takes a turn for the worse, analysts worry this may sway Trump supporters to abandon him in the 2020 presidential election.
If China further tariffs American crop imports, it could seriously hamper US economic growth. In the end, the losses to both China and the US could serve as a sort of mutually assured destruction. Should this become the case though, American absence from Chinese agricultural markets would open China up as a potential new market for other producers. After the United States, India and Nigeria are the world’s biggest sorghum producers. In the soybean market, Brazil and Argentina top the charts following the US.
Author Bio: Adriana Ray is an Asia Policy Analyst at FAO Global where she researches and writes on Economic, Security, and Political issues in the region. Adriana is currently a graduate student at Georgetown University’s School of Foreign Service where she is pursuing a Masters in International Security. She is also an alum of Tsinghua University and Furman University.
Related Links
- The Guardian – US grain ships diverted at sea hours after China imposes grain tariff
- The Hill – Report: Ships carrying US sorghum stuck at sea after China imposes tariffs
- CNBC – China could end up hurting itself with trade action against US farmers. Here’s how
- FCA – Major US Agricultural Export Markets: China, Canada, and Mexico
- World Atlas – 10 Countries With Largest Soybean Production
- World’s Top Exports – America’s Top Trading Partners
