US challenges USD 100 bn in China rice, cereal subsidies

US President Barack Obama launched legal action against "unfair" Chinese rice, wheat and corn subsidies at the World Trade Organization today, setting up a culturally sensitive multi-billion-dollar trade spat.
The United States alleges that China doled out USD 100 billion in "market price support" for the grains, above levels agreed at the Geneva-based WTO.
"When other countries flout the rules to try and undercut American workers and farmers, we hold them accountable," Obama said in a statement announcing the action.
China is the world's largest producer of wheat and rice, holding significant sway over world markets.
Rice, in particular, is a food staple, with important cultural and political significance.

Just six decades ago, Mao Zedong's Great Leap Forward, a drive to industrialize China, spurred mass famine that killed as many as 45 million people.

Today, China's government has put a premium on agricultural self-sufficiency and safeguarding supply, much to Washington's ire.
It believes that Chinese state aid lowers production costs for the country's farmers, making them more competitive around the world.
The US government estimates that its own rice, wheat and corn industry is worth an estimated USD 20 billion a year and accounts for 200,000 American jobs.
Many of those jobs are in states like Iowa and Kansas which, because of peculiarities of the US electoral system, have an outsized role in deciding presidential elections.

In a nod to that reality, Obama's statement had a distinctly political edge.
"China's government has set prices for wheat, corn, and rice well above market levels, which has led to unfair government subsidies that are in violation of WTO rules," Obama said.
"These unfairly distorted prices on important crops lead to overproduction in China and disadvantage American farmers who export these same crops around the world."
The 2016 election race has seen Republican and Democratic presidential candidates take a much more protectionist line on trade.
China has been the target of particularly tough campaign rhetoric.
Republican nominee Donald Trump has skewered China for stealing US trade secrets and called Beijing "the greatest currency manipulators ever."

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Though they stressed the importance of cooperation between the two countries, the officials made it clear that China's intention to maintain a stable economic and trade relationship with the US, but also stressed China is not afraid of protecting its interests when threatened, Gu Xueming, president of the Chinese Academy of International Trade and Economic Cooperation of the MOFCOM, told the daily.
"Obviously, we are not willing to engage in a trade war, but we are also not afraid if it's necessary," Gu said, adding that the commerce minister's enumeration of top US exports to China could be a message to the US that "if you hurt our interests, we know where to start to respond."

Jiang said China has to set a bottom line, and that if the US crosses that line by threatening bilateral trade, China "will have no option but to respond."
He said, at the moment, both sides are likely just testing each other's bottom lines and will likely arrive at a compromise, and "China needs to be firm on its core interests and let them know these are off the table at any negotiation, just like the one-China policy."
Such US government policies, especially one that implies the US should ignore WTO rulings it deems harmful to its economy, could fuel a full-fledged trade war between major economies, said Jiang Yong, a research fellow at the China Institutes of Contemporary International Relations.

"If the US ignores WTO decisions and resorts to protectionist measures, that would almost certainly lead to retaliation from other countries and start a trade war," Jiang was quoted as saying in the report.