Will China respond to U.S. president Donald Trump’s latest tariffs in the same way it did in 2018, by restricting its imports of American soybeans?
As the U.S. president lashes out against friend and foe alike with his fixation on using tariffs to fight what he sees as unfair trade imbalances, it is nearly impossible to weigh all the consequences.
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His aggression against Canada is particularly pointed, unfair, unreasonable and damaging to American self-interest.
I hope that the full court press of lobbying by Canadian politicians and businesspeople will convince America’s political and business sectors of the folly of the policy and to stand up to Trump and force him to back down.
Only time will tell.
However, I believe that China will not be able to stir up enough good will in the United States to stop a re-animation of the trade war that Trump started in his first term.
The majority opinion in the U.S., and indeed much of the rest of the western world, is that China’s government policies and subsidies give its industry an unfair advantage.
China is seen as the main geopolitical competitor to the U.S. in the world, and if its unfair competition is not reigned in, it could win the battle for strategic dominance in the 21st century.
For this reason, I think a tariff battle with China will have more domestic American support.
During Trump’s first term trade battle, China’s aggressive response included banning imports of U.S. soybeans.
That sharply weakened U.S. soybean prices, which in turn weakened canola prices.
In a column in November I talked about the effects of that trade war and how the American soybean industry believes it came out the loser. It can be found at https://www.producer.com/markets/tariff-war-might-again-roil-oilseed-markets/.
Since taking office, Trump has levied a 25 per cent tariff on Chinese steel and aluminum as well as a general 10 percent tariff on all Chinese good. This is in addition to the range of tariffs America already had, such as those on Chinese electric vehicles and batteries, semiconductors and solar panels, to name a few.
So far, China’s response has been modest and calibrated. It appears Beijing does not want to needlessly antagonize Trump, allowing room to negotiate.
It put 15 per cent countervailing tariffs on American coal and liquified natural gas and 10 per cent tariffs on crude oil, agricultural machinery and pick-up trucks.
These measures target only a small percentage of America’s exports to China.
As well, Chinese president Xi Jinping does not seem to want to directly confront Trump. Because this column was written Feb. 13, it was not clear that the two leaders had spoken since the tariffs were levied.
Why is China not mounting an aggressive response this time?
For one thing, its economy is not as strong as it was in 2018.
Beijing’s aggressive response to COVID, which included extended lockdowns that froze business, damaged its economy much more than the response in North America and Europe.
Also, the country is still dealing with a real estate crisis caused by overbuilding during the exuberance of the first two decades of this century.
There is an overabundance of unfinished apartment buildings, houses and empty shopping malls. Municipal governments are saddled with huge debts from servicing land, infrastructure and pandemic-related spending.
Many consumers had saving tied up in the property boom and are now suffering as values fall. They are rebuilding their savings, their confidence is weak and they are buying little. Youth unemployment is near 20 per cent.
This makes the export economy more important than ever, and that would be threatened by a new trade war with the U.S.
Beijing has instituted economic stimulus measures to build confidence among its citizens, and the country hit its five per cent gross domestic product growth target in 2024, but that was much lower than in the recent past.
This makes it easier to understand why China does not want to escalate the trade dispute.
After all, during his re-election campaign, Trump threatened tariffs on China as high as 60 per cent.
China might adopt a more conciliatory approach this time and hope to ride out Trump’s presidency with the least damage.
At the same time, it could try to capitalize on the anger around the world created by Trump’s scattershot tariff threats and eliminating foreign aid.
Beijing could make diplomatic and economic gains as Trump’s “bull in the china shop” act turns countries away from America.
Also, there is no way to know, but Xi might have decided that China needs U.S. soybeans.
Efforts to increase domestic soy production have proven disappointing and imports, mostly from Brazil and the U.S., have grown to a forecast of 109 million tonnes this year from 94 million in 2017-18.
To contact D’Arce McMillan, email newsroom@producer.com.
