China looks to replace US farm goods as trade row turns sour

American cherries, soybeans, cars, pork and whiskey will all be more expensive if Beijing hits back with retaliatory taxes

PUBLISHED : Wednesday, 04 July, 2018, 3:05pm
UPDATED : Friday, 06 July, 2018, 5:16pm

American cherries are tantalisingly sweet. They are so loaded with sugar and low on water that China’s home-grown cherries cannot compete on taste or texture.

But this alone may not be enough, said Zhao Xiaoyu, a Beijing fruit merchant, who believes Chinese consumers will be biting into domestic cherries and lower quality fruit from elsewhere after Friday, when China is expected to impose a 25-per cent border tax on hundreds of American goods.

Simmering trade tensions between the world’s largest economies are set to erupt on Friday, with Washington poised to impose new tariffs on US$34 billion in Chinese goods.

Beijing has pledged to hit back dollar for dollar, placing a new tax on American goods like cherries, soybeans, cars, pork and whiskey, putting them at a disadvantage to their global rivals.

Washington’s list is heavy on tech goods, aiming in part to shift supply chains away from China, while Beijing has put politically sensitive US farm goods in the firing line.

“For simple products it’s going to be faster to shift production, but for more complex products it’s going to be difficult,” said Denis Depoux, from consultancy Roland Berger.

The quickest manufacturers would need at least a year and “won’t make the changes until they know this is real and here to stay”, he said.

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Farm products would appear simpler to substitute, Depoux said, although it would depend on the volumes available elsewhere and could require a planting season or two.

The Chinese saying, “Take a day without meat, but not a day without beans” speaks to the importance of soybeans in China.

Providing critical protein in animal feed and used in cooking oil, 1.4 billion Chinese rely on imported soybeans, primarily from the US and Brazil.

Last year, China imported US$14 billion worth of soybeans from the US, its largest imported good.

No other single country grows enough to satisfy China’s demand, soybean traders say, with annual imports of about 95 million tonnes making it hard to move completely away from the US.

“As soon as the tariffs are slapped on, this will be reflected in the price of soybeans,” said Cui, a soybean trader at Scents Holdings Beijing, which has bought tens of millions of dollars worth of the beans from the US, according to figures from Panjiva, a trade data firm.

“When it gets to regular people’s dining room table, whether it’s meat or cooking oil, there will be a price effect,” Cui said, asking for his full name not to be used.

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To lessen the self-inflicted shock, Beijing is searching for replacements.

“There are prospects for more soybeans from South America, the so-called Stan countries in central Asia and even Eastern Europe,” said Si Wei, a professor at China Agricultural University.

“How much we can replace, this still needs to be looked into,” he said.

China might also substitute rapeseed from Australia and Canada to make animal feed, he said.

At home, Beijing is ramping up production in northern provinces, providing subsidies to farmers and launching an advertising blitz, according to government edicts.

“Expanding soybean production is the chief political task,” said the agriculture commission in Changchun, capital of east China’s Jilin province.

Sorghum, used in animal feed and liquor making, is another grain the US sends to China in bulk, moving 4.8 million tonnes last year, according to Chinese data.

In recent years, the cheap American grain beat out exports from Australia, which had been China’s primary source in 2013, according to Panjiva. Experts expect Australian growers to benefit from the trade fight.

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Trade tensions earlier this year gave a foretaste of what may be to come: when China slapped a new customs deposit on the US grain, several ships carrying sorghum bound for China changed course en route.

The dispute also has US traders and growers worried. US Senator Ron Wyden blasted Commerce Secretary Wilbur Ross last month, noting growers with 1.5 million boxes of cherries ready for China came to him in a panic.

“They’re worried those cherries are going to end up stuck at the dock or rotting in a warehouse due to China’s retaliation,” Wyden said.

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Zhao the Beijing cherry importer said existing contracts for this year’s cherry harvest would make it hard to stop buying American cherries altogether.

“If we lose some money on contracts this year, there’s nothing we can do about it,” he said.

“If it’s still going on next year, we’ll go straight to Turkey and Uzbekistan.”