U.S. and China tariff showdown… ‘It's déjà vu all over again’ | Michigan Farm News

U.S. and China tariff showdown… ‘It's déjà vu all over again’

Category: Markets & Weather

by Dennis Rudat | Farm News Media

The Yantian International Container Terminal, Shenzhen, China. | Photo from USDA

In the words of baseball legend Yogi Berra, "It's déjà vu all over again" for U.S. farmers hoping for a quick resolution to the nearly 12-month retaliatory tariff battle between the U.S. and Chinese trade officials.

Following an announcement from the Trump administration May 10 to increase tariffs from 10% to 25% on $200 billion worth of Chinese products, China announced today that effective June 1, 2019, it will be increasing tariffs to 20% or 25% on $60 billion of U.S. exports.

Nearby and new-crop soybeans on the Chicago Board of Trade (CBOT) closed down 9 cents from last Friday’s opening bids, while contracts for nearby and new-crop corn actually closed up 4 cents. Meanwhile, the Dow Jones Industrial Average fell 671 points, or 2.6%, to 25,271, heading for its biggest one-day loss since January. The S&P 500 dropped 2.5% and the Nasdaq Composite declined 3.4%.

The tit-for-tat tariff announcements were made even as trade negotiators were meeting in Washington, D.C., proving another famed “Yogi-ism” — “It ain't over till it's over." The U.S. increase in these particular round of tariff announcements had been delayed twice since Sept. 21, 2018.

According to Michigan Farm Bureau (MFB) Commodity Department Manager Ernie Birchmeier, additional tariff duties were set to increase to 25% on Jan. 1, but on Dec. 19, the U.S. Trade Representative published a new directive in the Federal Register, postponing the increase in the rate of the additional duty to 25% until March 2.

“After considerable negotiation between the United States and China, on Feb. 24, the president directed the USTR to again postpone the increase in tariffs,” Birchmeier said. “That obviously created high expectations for an end to the tariff threats — but it’s safe to say the bump from 10% to 25% on May 10 ends the speculation as to when/if the increase in tariffs would occur.”

It also puts a positive outcome for U.S. farmers in serious doubt — at least for the 2019 crop year — even as planters have yet to hit the fields due to continued weather delays across the mid-west.

Agricultural goods subject to the increased retaliatory tariffs by China include citrus fruits, vegetables, berries, nuts and other products. China retaliated in September 2018 to the U.S. tariff on $200 billion of Chinese exports by imposing 5% and 10% tariffs on $60 billion of goods, including major U.S. agricultural commodities soybeans, beef, pork, and corn, to name a few items.

The 10% tariff was imposed by the U.S. on $200 billion of Chinese imports in September 2018. The tariffs were levied because of a Section 301 investigation into China’s treatment of U.S. business regarding forced technology transfer and intellectual property protection.

“While the negotiations with the delegation from China last week in Washington, D.C., did not result in an agreement, the trade negotiations are continuing,” Birchmeier said. “Farm Bureau continues to urge trade officials to engage in discussions with their Chinese counterparts to resolve trade concerns.”

The American Soybean Association (ASA) is also calling for a quick resolution. In a press release issued today, ASA President Davie Stephens, a soybean grower from Clinton, Kentucky, called the trade negotiations serious for U.S. agriculture.

“The U.S. has been at the table with China 11 times now and still has not closed the deal,” Stephens said. “What that means for soybean growers is that we’re losing. Losing a valuable market, losing stable pricing, losing an opportunity to support our families and our communities.”

The soybean industry realizes the Administration’s reasons for trying to force China to make structural changes to its predatory economic policies, including forced technology transfers, intellectual property theft, and subsidies to state-owned enterprises. Yet, ASA continues to recommend that the U.S. achieve these goals through coordinated actions with like-minded developed countries.

“We’ve been understanding during this negotiation process, but we cannot withstand another year in which our most important foreign market continues to slip away and soybean prices are 20 to 25 percent, or even more, below pre-tariff levels,” said John Heisdorffer, ASA chairman and a Keota, Iowa, soy grower. “The sentiment out in farm country is getting grimmer by the day. Our patience is waning, our finances are suffering, and the stress from months of living with the consequences of these tariffs is mounting.”

While the ASA said it supports the Trump Administration's overall goals in trade negotiations, it cannot support continuing and escalating the use of tariffs to achieve them. ASA is calling for the elimination of China’s 25 percent tariff on U.S. soybeans and the use of other tactics to pursue the structural changes the U.S. is seeking in China’s economic policies, including working with like-minded countries.

“The soybean market in China took us more than 40 years to build, and as this confrontation continues, it will become increasingly difficult to recover,” Stephens said. “With depressed prices and unsold stocks expected to double by the 2019 harvest, soybean farmers are not willing to be collateral damage in an endless tariff war.”