The trade war with China has escalated to a war of words and more weaponized economic efforts. More tariffs will be implemented, China halted imports of U.S. ag products, and both countries traded labels and name calling.
The most recent events came in a string of tit-for-tat exchanges.
On Thursday, Aug. 1, as covered last week in WLJ, President Donald Trump tweeted that a new 10 percent tariff would hit the $300 billion in imported goods from China, starting Sept. 1. Trump said the new tariffs were necessary because China had not made good on its pledges to buy more U.S. agricultural commodities.
Chinese officials from the National Development and Reform Commission, via state-controlled news outlets, have denied this accusation, calling it groundless.
Then, on Monday, Aug. 5, China’s Ministry of Commerce—via official state news outlet Xinhuanet—said the additional tariffs “seriously violated the consensus reached by the two heads of state” during the recent G20 trade talks. It additionally announced that state-controlled companies have halted purchases of U.S. farm produce.
Also on Aug. 5, China allowed its currency, the yuan, to fall to the lowest value level seen in over a decade at 7:1 versus the U.S. dollar, according to Bloomberg. This action contributed to massive losses in stock markets such as the Dow Jones Industrial Average, down over 735 points in Monday’s trade.
Trump called the devaluation a “major violation” in an early-morning Monday tweet.
Monday also saw the U.S. Treasury Department officially designate China a currency manipulator.
“In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past. The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade,” stated the department in its announcement of the decision.
“As a result of this determination, Secretary [Steven] Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”
Chinese officials, via state-controlled news outlets, blasted this move, variously denying the charge and asserting the use of the “currency manipulator” designation as self-defeating “bullying.”
“It is wayward unilateralism and protectionist behavior that seriously undermines international rules and will have a major impact on global economic finance,” commented an unnamed official from the People’s Bank of China in a Xinhuanet report.
“Body blow” to U.S. ag
“China’s announcement that it will not buy any agricultural products from the United States is a body blow to thousands of farmers and ranchers who are already struggling to get by,” commented American Farm Bureau Federation President Zippy Duvall in the group’s official response to the announcement.
“In the last 18 months alone, farm and ranch families have dealt with plunging commodity prices, awful weather and tariffs higher than we have seen in decades,” he continued.
“Farm Bureau economists tell us exports to China were down by $1.3 billion during the first half of the year. Now, we stand to lose all of what was a $9.1 billion market in 2018, which was down sharply from the $19.5 billion U.S. farmers exported to China in 2017.”
Last year, the U.S. exported just under 22 million pounds of beef and veal to mainland China, according to USDA records. Trade data through June (most recent complete) compiled by the U.S. Meat Export Federation (USMEF) shows year-to-date exports of beef and beef variety meats to mainland China up 5 percent by volume at 8.5 million pounds, but down 9 percent by value at $30 million.
Though the mainland Chinese market hasn’t been a major market for U.S. beef, it has been a major market for U.S. pork. According to USDA records, the U.S. exported 334.9 million pounds of pork to China in 2018. This was down from 2017 (380.4 million pounds) and down considerably from the recent high of 668.6 million pounds in 2011.
According to USMEF, year-to-date pork and pork variety meat exports to China through June are up 23 percent by volume at 390.4 million pounds and up 3 percent by value at $353.1 million. This made China the third-largest destination for U.S. pork by volume and fourth largest by value. Disruption of pork exports could result in more pork on the domestic market. This in turn could pressure beef on the domestic market.
Soybean farmers have felt the biggest blow from the trade war with China. The country represents “the largest market traditionally for U.S. soybean exports,” according to the American Soybean Association (ASA). At the beginning of July, one year after the conflict began, ASA President Davie Stephens said the anniversary was no cause for celebration.
“Before the trade war, U.S. soybean farmers saw prices well over $10 per bushel, but now that number has been in the $8 range way too often. Dealing with weather, weeds, pests and normal markets is tough enough for farmers, but being caught in the middle of a trade war for an entire year is a whole different level. Prices are lower and anxiety is definitely higher for those of us trying to keep our farms going.”
The group noted at the beginning of July that “shipments of U.S. beans to China were down 19.2 million metric tons, or 705.2 million bushels, in the first 10 months of the current marketing year compared to the 2017/18 marketing year.” — Kerry Halladay, WLJ editor