• Despite Beijing's threats, some American goods 'appear inevitable' for China

    27 Jun 2018 | Economic News


A wave of Chinese tariffs on U.S. goods is set to come into effect on July 6 as trade tensions between the two countries continue to intensify.

Those tariffs — which China has said will be levied against goods worth $34 billion — will in part target several major U.S. commodities, including soybeans, electric vehicles, seafood and pork. Another list subject to tariffs at a later date includes crude oil.

On the surface, Beijing's decision to target commodities may seem a strategically sound move: By definition, commodities are interchangeable, so the Chinese marketplace should be able to swap out its U.S. imports for those from another country. But that might not work out quite so well for China, experts said.

"The picture is a little more nuanced," said Caroline Bain, research consultancy Capital Economic's chief commodities economist.

Take soybeans, for example.

U.S. exports constitute 40 percent of all soybeans traded internationally. China, meanwhile, imports about 60 percent of all soybeans in the global marketplace. In other words, the U.S. has been an important supplier for China, but Beijing's July 6 tariffs will include a 25 percent levy on American soybeans.

Brazil already supplies about half of China's soybean imports, and Chinese buyers are purchasing more and earlier from the South American country this year, Bain said.

And, in a sign that China is planning to ramp up soybean purchases from other countries to work around U.S. supplies, Beijing said on Tuesday that it would remove import tariffs on animal feed ingredients including soybeans from five Asian neighbors, Reuters reported, citing China’s Ministry of Finance.

After all, there's only so much more China can buy from Brazil, or the world — without U.S. supply, soybean exports from the rest of the world will not able to cover Chinese import needs. Brazil also can't export that much more as its large livestock industry needs soybeans.

However, China said in May it will cut soybean imports for the first time in 15 years for the next marketing year to about 96 million tons, Reuters reported. What that means is farmers will have to find alternative animal feed.

"Of course, farmers could substitute soybean meal with grains in animal feed, but this is not ideal given the lower protein content of most grains. As such, some imports from the U.S. appear inevitable, at least for now," Bain added, noting that tariffs may eventually prove disruptive — not just for the U.S., but also for China.


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