Potential Return to China Tariff Wars

OMAHA (DTN) -- U.S. agriculture could again bear the brunt of retaliation from China following the Biden administration's move to dramatically hike tariffs on metals, semiconductors and electric vehicles.

The White House stated Tuesday's actions focused on "strategic sectors" that involve federal investments made in the Biden administration. The White House also stated that the Trump administration's trade deal with China had failed to increase U.S. exports or boost manufacturing jobs.

The Chinese Ministry of Commerce countered that it would take countermeasures against the U.S., though no announcements were immediately made.

November soybean futures fell 1 1/4 cents on Tuesday to $12.05 a bushel, but other commodities sensitive to trade with China fell even more. The July cotton contract closed limit down on the news about tariffs, said DTN lead analyst Todd Hultman.

"They are very sensitive to China and any trade relations going bad," he said about the cotton market.

TECH AND ELECTRIC VEHICLES

The Biden administration's announcements draw back to the 2018-19 trade war between the U.S. and China over the sheer volume of Chinese imports compared to U.S. exports.

Biden raised tariffs on certain steel and aluminum products back to 25%. The tariff rates on semiconductors will go to 50% in 2025 as a way to protect $53 billion in investments made under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act. The tariff rate for Chinese electric vehicles also will be immediately increased from 25% to 100% to stop potential cheap Chinese imports. Other tariffs were placed on lithium-ion batteries for electric vehicles and solar panels.

The tariffs come under Section 301 of the 1974 Trade Act.

Biden had come under criticism from Republicans over his push for lower greenhouse emissions from transportation. Republicans argued that electric vehicles and batteries from China would flood the U.S. market.

USED COOKING OIL MARKET

There was some speculation that the White House could put tariffs on used cooking oil from China. There have been reports the U.S. renewable diesel market is becoming swamped with used cooking oil imports from China -- and that the used oil also is being blended with palm oil as well. However, used cooking oil did not make the tariff list.

The fact that used cooking oil was not on the list led to the July soybean oil contract falling 1.75 cents to 43.40 cents -- the lowest price for the July contract in three years.

Virginia Houston, director of government affairs for the American Soybean Association (ASA), said there are issues with cooking oil imports, but ASA did not push for tariffs because soybean farmers are more concerned about retaliation from China.

"Our primary concern with the 301 tariffs remains retaliation," Houston said.

ASA is hopeful that the list of Chinese products hit by the new tariffs is narrow enough in scope that Chinese officials won't choose to again slap tariffs on agricultural imports from the U.S.

RELIVING THE TRADE WARS

American farmers were almost entirely cut off from China as a buyer in 2018 and 2019 as former President Donald Trump began the pressure tactic of raising tariffs on Chinese imports. That included a 25% retaliatory tariff on soybeans, which accounts for roughly 60% of all U.S. agricultural exports to China. The tariffs were waived and lowered to 3% for soybeans in 2020.

In its comments last year reviewing the Section 301 tariffs against China, the ASA recommended ending the tariff disputes.

"Our recommendation was to get away from this tit-for-tat tariff war and get back to market-driven trade policy," Houston said.

The loss of export sales led to $23 billion in trade subsidies for U.S. farmers before a 2020 deal was reached that promised more agricultural market access to China.

CHINESE IMPORTS DOWN

China never hit its promised target of buying $40 billion a year in U.S. agricultural products, but agricultural sales to China peaked in 2022 at a record $38.1 billion. That fell to $29 billion last year. For the first three months of 2024, sales to China were $8.3 billion, down about 12% from last year, according to Foreign Agricultural Service statistics.

For the grain marketing year that began Sept. 1, 2023, soybean sales are down nearly 24% from a year ago. Corn exports to China are down nearly 59% compared to the same point last year.

Since the start of 2024, pork shipments are down nearly 23%, as are outstanding sales. Shipments of beef also are down about 6%.

POSITIVE OUTLOOK FOR DEMAND?

Another issue with China involves the price of Brazilian soybeans. Coming out of its harvest season, Brazil's Free on Board (FOB) price has narrowed to within 12 cents of the U.S. price.

Hultman said the Brazilian soybean prices suggest either Brazil's supplies are tighter than expected or China's demand is stronger than expected.

"For whatever reason, Brazil's soybean supplies have tightened up much more quickly than usual for this time of the year," Hultman said. "China is in a period of stronger demand and their own soybean prices have had significant gains since February, too. They may be less likely to retaliate on soybeans if this is a time in need and maybe Brazil's not going to have soybeans all summer long."

Chris Clayton can be reached at Chris.Clayton@dtn.com

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