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Trump trade war: China's most powerful weapon may cause worldwide turmoil

President Xi Jinping's administration is studying the impact of restricting soybean imports in retaliation for US tariffs on washing machines and solar panels

Bloomberg 

soybean

As tensions escalate between the US and China, one crop is emerging as the most powerful weapon in a potential trade war: the is the biggest buyer of American soybeans, picking up about a third of the entire US crop, which it uses largely to feed 400 million or so pigs. Xi Jinping’s administration is studying the impact of restricting in retaliation for US tariffs on washing machines and solar panels, people familiar with the situation told Bloomberg last week. Any curbs would directly hit farmers in the Midwestern US states that needs to win re-election in 2020. Yet they would also pose a big risk for Xi: His nation is the world’s largest pork producer and consumer, and higher costs for pig farmers could increase prices of meat for his nation’s 1.3 billion citizens. Food prices have long been a politically sensitive issue for China’s ruling Communist Party, which rose to power in 1949 in the wake of economic mismanagement that led to hyperinflation. A surge in the cost of everything from pork to electronics in the late 1980s also stoked dissatisfaction in the run-up to the Tiananmen Square protests. ‘Worst-Case Scenario’ “Using soybeans to retaliate against the US would be a worst-case scenario” for China, said Li Qiang, chief analyst with Shanghai JC Intelligence Co., a private consulting firm. “Pork is a staple meat for Chinese people.” China’s and didn’t immediately respond to faxed questions about the potential impact of restrictions on soybeans. On pig farms in rural Tianjin, some 200 kilometres (124 miles) from Beijing, concern is growing. Standing next to a sow delivering piglets, Shi Ruixin said his costs would increase sharply if squeezed US “Hog feed prices will rise as well as pork prices,” the 68-year-old farmer said. The seasonality of the trade is one reason that can’t easily replace US supply, even though authorities in Beijing have sought to diversify. Last year, China’s from Brazil rose 33 per cent to about 51 million metric tonnes, while those from the U. S. fell 3.8 per cent to 33 million tonnes. Sun Chao, the of Tianjin Tianjiao Group -- the hog feed producer that supplies Shi -- said that US soybeans meet Chinese demand from October to Februar when the South American crop is still growing. “US supplies can’t be replaced,” said Sun, a 20-year veteran in the animal-feed industry who manages a cooperative with 150 farmers and 30,000 pigs. “We rely on each other.” ‘Extremely Concerned’ Chinese officials began looking into measures against soybeans in January as trade tensions with the Trump administration began to heat up.

The held a meeting with some Chinese companies to get feedback, and no conclusions were reached, Bloomberg reported earlier this month. Any final decision would be made by senior Chinese leaders. “We are extremely concerned by suggestions that US exports, including soybeans, may face unjustified trade restrictions,” Agriculture Secretary Sonny Perdue said in a statement. “American farmers are facing serious economic challenges without having to face bogus barriers erected strictly for political purposes. We are examining all tools available to us to assist our stakeholders.” ‘Painful for Everybody’ Trump has sought to close a trade gap in goods with that surged 8.1 per cent last year to a record $375 billion, according to Commerce Department data. Besides the duties on imported solar panels and washing machines, the administration last year began a probe into China’s aluminium and steel sales and its intellectual property practices. has responded by launching an anti-dumping and anti-subsidy investigation against US shipments of the grain sorghum, a substitute for corn. Restricting soybeans would have an even bigger impact on American farmers. “It would definitely put downward pressure on prices,” said Dave Salmonsen, senior director of congressional relations with the American Farm Bureau Federation, the biggest US farmer group, based in Washington. “We’re already in a surplus situation, and losing would just make everything worse.” Still, one US farmer who hosted Xi during his 2012 visit to the US doubts will take action against soybeans. Grant Kimberley, who raises 4,000 acres of corn and soybeans northeast of Des Moines, Iowa, said Chinese restrictions would lead to “dramatic swings” in prices that would disrupt trade throughout the world. “It would be painful for everybody,” Kimberley said. “Painful for the Chinese, painful for the US I don’t see why anyone would want to do it.”

First Published: Wed, February 14 2018. 08:55 IST
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