China Strikes at Trump's Rural Heartland With Tariff on Soybeans

(Bloomberg) -- China has taken aim at America’s rural heartland as the top buyer of U.S. soybeans said it would restrict imports.

China’s Ministry of Commerce on Wednesday said it plans to impose 25 percent duties on the commodity in addition to other U.S. agricultural produce including wheat, corn, cotton, sorghum, tobacco and beef. They’re among 106 products ranging from aircraft to chemicals targeted by Beijing in retaliation for proposed American duties on its high-tech goods.

The announcement ended weeks of speculation over whether Xi Jinping’s government would target the commodity that it buys in huge volumes from the U.S. and is essential to feeding its citizens’ growing appetite for pork. Beijing pulled the trigger after the Trump administration proposed $50 billion in levies on a slew of Chinese goods from gas turbines to lithium batteries.

“China’s response carries both economic and political weight as agricultural states are major supporting regions for Trump,” said Monica Tu, an analyst at Shanghai JC Intelligence Co. “The tariffs on U.S. imports including soybeans is China’s response that matches the scale of proposed U.S. tariffs.”

China is the world’s biggest importer of soybeans and America’s largest buyer in trade worth $14 billion last year. That figure had been set to grow after purchases climbed to a record as large-scale livestock farming expands amid a shortage of protein-rich feed grains.

Soybeans led a tumble in agricultural prices, with the futures for May delivery dropping as much as 5.3 percent to $9.835 a bushel, the most since July 2016 for the most-active contract. The daily volume traded on the Chicago Board of Trade was more than seven times the 100-day average. Corn and cotton also declined.

U.S. Ambassador Terry Branstad last month warned Beijing against retaliatory measures aimed at imports of the oilseed and said any efforts to curb the trade would harm ordinary Chinese citizens more than American growers. In an email on Wednesday, Paul Burke, North Asia Regional Director of the U.S. Soybean Export Council, said duties on soybeans will hurt U.S. farmers as well as Chinese soy processing, animal producers and consumers.

China is the world’s biggest pork producer and consumer and its industry relies on soybean meal, a product of soybean crushing, to feed to pigs. Rising costs for hog farmers risk increasing the price of pork, a component of China’s consumer price index.

While about a third of U.S. production goes to the Asian country annually, China last year bought more of the oilseed from Brazil. “This will obviously benefit Brazilian exporters,” said Warren Patterson, a commodity strategist at Dutch bank ING Groep NV. “They will be licking their lips right now.”

Sorghum’s another commodity that’s been closely watched since China announced an investigation into imports from the U.S. in February, just two weeks after President Donald Trump slapped tariffs on imported solar panels and washing machines, his opening salvo in a brewing trade war.

The Asian nation accounts for about 80 percent of American sorghum exports in a trade worth about $957 million last year. The probe is to be completed by Feb. 4, 2019.

Cotton represents another significant flow of trade from the U.S.: exports of fiber in its raw form fetched $5.8 billion last year, government data show. China was the top destination after Vietnam.

The date on which China’s tariffs will be implemented depends on the outcome of negotiations with the U.S., Vice Finance Minister Zhu Guangyao told reporters after a briefing in Beijing on Wednesday.

--With assistance from Manisha Jha Niu Shuping and Agnieszka de Sousa

To contact the reporters on this story: Alfred Cang in Singapore at acang@bloomberg.net, Phoebe Sedgman in Hong Kong at psedgman2@bloomberg.net.

To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net, Alex Devine, Rachel Graham

©2018 Bloomberg L.P.