China tariffs hit Trump heartland where it hurts – in American agriculture and energy

Coal, crude and dairy products among the US commodities affected by retaliatory Chinese levies

PUBLISHED : Sunday, 17 June, 2018, 5:32pm
UPDATED : Sunday, 17 June, 2018, 6:00pm

China’s response to US tariffs aims to hit the Trump administration right in its natural resources.

The world’s largest commodities consumer said on Friday that it would levy a first round of tariffs on US$34 billion worth of US agriculture products, as well as cars, starting on July 6. Another US$16 billion in goods, including coal and oil, will be subject to tariffs later. The escalating dispute sent the prices of everything from soybeans to copper lower and hit the shares of US coal producers while boosting the prospects for alternative suppliers like Brazil.

By focusing on agriculture and energy, the tariffs target rural communities in states that voted for Donald Trump in 2016. Beijing’s announcement came less than 12 hours after the US released its list of US$50 billion worth of Chinese products subject to tariffs. As recently as May, Beijing said it would seek to buy more US agricultural and energy products as part of a tentative trade truce between the two countries.


Farm commodities have been a key battleground in the trade war between the world’s two biggest economies. In April, China started levying additional taxes on American fruit, nuts, pork and wine in response to President Trump’s tariffs on steel and aluminium. Products affected include soybean, corn, wheat, rice, sorghum, beef, pork, poultry, fish, dairy products, nuts and vegetables.

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The list covered almost all farm products imported from the US, said Li Qiang, chief analyst with Shanghai JC Intelligence. “Given China’s big trade surplus with the US, it will be more difficult and complicated for China” in the future to retaliate if Washington expanded the tariff to cover more products, Li said. The new list includes more agricultural produce, including dairy, alfalfa and seafood, than the version published in April.

In 2017, China’s agriculture imports from US were worth US$24.1 billion, People’s Daily reported on May 24, citing customs data. That is about 19 per cent of total farm imports worth US$125.86 billion, according to data from the Ministry of Agriculture and Rural Affairs.


The coal tariffs strike at the heart of Trump’s energy agenda. Since he was elected, the president has been trying to make good on a campaign promise to revive America’s coal industry. They also come as US miners have grown increasingly dependent on foreign markets for growth. US coal exports jumped by 61 per cent in 2017 as shipments to Asia more than doubled.

A few weeks ago, China was looking at buying more from the US. While it is pursuing a long-term goal of using less of the fossil fuel, the country still produces, consumes and imports more than any other nation. It bought 271 million tonnes from overseas last year, according to customs data. The US exported about 2.9 million tonnes to China, data from the Energy Information Administration show.

The total value of US coal exported to China last year was about US$395 million, according to Bloomberg Intelligence. About 90 per cent was metallurgical coal, which is used to make steel.


China has been a key recipient of American oil since a 40-year US ban on exports was ended by then-president Barack Obama in 2015. Beijing is helping to drive a surge in exports from the US – China imported 18.4 million barrels of American crude and oil products in March, making it the third-biggest customer behind Mexico and Canada.

For China, the biggest importer of oil in the world, US crude is just a small part of its portfolio, with major suppliers like Saudi Arabia and Russia having the biggest shares. China spent US$162.3 billion on crude purchases last year, with just US$3.16 billion of that going to the US.


China also said it would place tariffs on imports of natural gas, but its list only specifies the fuel in gaseous form, not the liquefied natural gas that it currently imports by ship from the US. China is the third-largest buyer of US LNG, after Mexico and South Korea. Record production from America’s shale plays has allowed the US to become a net exporter of the fuel for the first time since the 1950s.

China is set to become the world’s largest importer of LNG in the next decade, and several proposed US export projects are seeking long-term buyers to finance construction. Bloomberg New Energy Finance forecasts China’s imports will grow to 74 million tonnes a year by 2030, but the country has long-term contracts to supply just 38.5 million tonnes by then.

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There have been signs of growing cooperation between the two countries. Earlier this year, China National Petroleum Corp signed a 25-year deal with Cheniere Energy to buy US gas. China Petrochemical Corp has signed a joint development agreement with a proposed export plant in Alaska, and China Gas Holdings has agreed to buy 2.7 million tonnes of LNG a year from Delfin LNG’s proposed plant in the Gulf of Mexico.


While US carmakers import few vehicles into China, the tariffs pose a significant threat to BMW and Daimler’s American factories that make vehicles both for domestic buyers and export markets.

Tesla also builds all of its vehicles in Fremont, California, and the tariffs could compromise affordability in its second-biggest market in the world. Revenue from deliveries to China rose 90 per cent last year to US$2.03 billion.

Other iconic American products on the list, like whisky, may be more symbolic. Last year, China imported only US$12.8 million worth of US spirits, about 70 per cent of which was whisky, according to the Distilled Spirits Council. Brown-Forman Corp, the maker of Jack Daniel’s, doesn’t even list China as a top 10 market, though net sales growth there was in the double digits last year.

On Saturday, China’s commerce ministry announced it will collect anti-dumping deposits on imports of hydriodic acid and ethanolamine from the US, of which Iofina Chemical and Dow Chemical are major suppliers.