US President Donald Trump claims that America has been ‘ripped off by virtually every country in the world’ through “unfair” trade deals. He also claims that China is the biggest problem, with the US economy losing US$500 billion ($640 billion) through the “inequitable” movement of goods between the two countries. To address some of those “trade imbalances”, Trump proposes placing a 25 and ten per cent tariff on steel and aluminium, respectively. President Trump cited national security concerns in announcing these trade policies; if, however, they are challenged by other countries at the World Trade Organisation (WTO), the claims are likely to come under increased scrutiny. If the tariffs are introduced, they are likely to provoke retaliatory trade policies. The European Union, for example, is already considering placing a 25 per cent tariff on a number of US imports if the tariffs are imposed on EU goods.
In February 2018, after Washington placed tariffs on Chinese-manufactured washing machines and solar panels, the Chinese Government began an antidumping investigation into US sorghum imports. In 2016-17 China purchased 82 per cent of US sorghum exports. The US National Sorghum Producers, an industry group, released a statement that seeks to quell market concerns about the alleged dumping and subsidisation of US sorghum in the Chinese market.
US soybean producers are equally worried. John Heisdorffer, the president of the American Soybean Association, believes that there is no disincentive for China to impose tariffs on US soybeans and import from Brazil or Argentina instead. China is the world’s largest importer of soybeans and purchases most of its imports from the US. According to the US Department of Agriculture, 60.6 per cent of US soybean exports in 2016-17 were sold to China. In 2016, those exports to China were valued at US$12.4 billion ($16 billion).
Most of the soybeans and sorghum imported into China is used in the production of feedstock for use in its domestic livestock industry. New Hope Group, the largest animal feed producer in China, has stated that it will find ways to cope with any trade dispute that could arise.
The US agricultural industry was the target of Chinese trade retaliation in 2009. Former president Barack Obama imposed a 35 per cent tariff on Chinese tyres. Beijing retaliated by placing penalties on US chicken. While Beijing has recently eliminated the tariffs, after a WTO ruling, the US is unlikely to regain access to the market as a ban on imports remains in place due to fears about the spread of avian influenza. The tyre tariffs were also found to have reduced US jobs, increased the costs of tyres for the American consumer and assisted alternative foreign exporters to increase their presence in the US market. If China places trade restrictions on US commodities, the effects are likely to be long lasting.
Australia is one of the smallest producers of soybeans in the world and is a net importer of soy-based products. Sorghum production is also relatively limited, with between 1.3 and 3.7 million tonnes produced per annum. Most of the crop is used as domestic feedstock with about one million tonnes exported to Asia each year. Chinese buyers have reportedly begun inquiries into sourcing greater amounts of Australian sorghum, but there is limited scope for the trade to dramatically increase in the short term. Due to the limited production of soybeans and sorghum in Australia, it will not significantly benefit from a trade dispute between China and the US.
China does not account for a high percentage of US steel and aluminium imports and there is a general agreement among economists that the tariffs will be inconsequential to China unless they lead to broader trade restrictions. China was the fourth-largest supplier of aluminium to the US in 2017, accounting for less than ten per cent of imports. It accounts for even less of the US steel market, with roughly two per cent of US imports coming from China. Beijing has been cautious in its approach to the announcement of the tariffs; it is keen to maintain the trade relationship, which produced a record US$375 billion trade surplus in 2017.
Canada and Mexico are likely to be the main targets of the metal tariffs. Most of the steel and aluminium that is imported into the US comes from Canada and the US is the main destination for Mexican steel exports. The announcement of tariffs is a potential act of brinkmanship in the ongoing negotiations over the future of the North America Free Trade Agreement. Beijing, however, is concerned about its ongoing trade relationship with the US. If Washington treats its close trade partners, and security allies, in this manner there is no telling how it could treat China in future trade negotiations.
Beijing recognises that farmers are, generally, a core Trump constituency and realises that focussing trade reprisals on their industry will be detrimental to the US president. It is moving early to ensure that it has a response to any potential change in US-China trade policy.