China slams 'US extortion tricks,' digs in heels as it vows to aid businesses hurt by tariffs

Key Points
  • Even as Beijing vows more retaliation in the trade war against Washington, there are measures being taken by the communist government to help cushion the blow from recent levies.
  • China is preparing its agriculture industry to cope with less soy, a major import from the U.S., while also offering financial assistance to companies across several industries.

Even as Beijing vows more retaliation in the trade war against Washington, there are measures being taken by the communist government to help cushion the blow from earlier tariffs amid signs China is willing to dig in its heels further.

China is preparing its agriculture industry to cope with less soy while also offering financial assistance to companies across several industries to help cushion the blow of new tariffs. But some Chinese businesses, especially those in the farm sector, are still unhappy about Beijing's strategy, some watchers say.

"China is making clear that they have the tools, or arsenal if you will, to protect their economy from this escalating trade war," said Nariman Behravesh, chief economist of IHS Markit. "But also I'm guessing there is some anxiety on the part of many Chinese businesses about this and where it ends up, so what they're essentially saying is, 'We'll protect you.'"

Revenue from higher duties China started collecting July 6 on U.S. products is expected to go to help "alleviate the impact" on companies and their employees, China's commerce ministry disclosed Monday. At the same time, the Chinese are encouraging importers to look for non-U.S. food and agricultural products for everything from soybeans and seafood to goods such as automobiles.

"The Chinese government has the ability to compensate and plenty of funds to tap," said Joshua Meltzer, senior fellow in the global economy and development program at the Brookings Institution, the D.C.-based think tank.

The trade spat escalated sharply Tuesday after the Trump administration unveiled a list of new 10 percent duties on $200 billion of Chinese imports. China on Wednesday slapped back with its own threat of tariffs on $200 billion of U.S. goods.

"U.S. extortion tricks, which are becoming more apparent, are diminishing in strength despite increasing in number," China's nationalist Global Times tabloid said Wednesday in an op-ed. "The Chinese government has been ready to take retaliatory measures whenever needed."

The Chinese state-run paper added, "Some export-oriented companies in China have suffered directly from the trade war and deserve the government's help to minimize the losses. The Chinese government can adjust economics and trade toward less dependence on the U.S."

China buys about two-thirds of the world's soybean exports, using most of it for soy protein to feed roughly 700 million pigs in the country or to make cooking oil. The soy also is used for feeding poultry and to support the country's fish farming sector.

"China has told their soybean importers, processors, animal feeders to just be prepared to consume 15 to 20 percent less soybeans next year than you did this year," said John Baize, president of John C. Baize and Associates, a consultant for the U.S. Soybean Export Council. "Wait until the pigs get hungry. There's just not many things you can substitute for soybean meal. At some point you have to have the protein supplement."

China buys roughly half of the U.S. soybean exports, and roughly one in three rows of soybeans grown on the nation's farms goes to the world's second-largest economy, according to the American Soybean Association. Nearly $20 billion in U.S. agricultural exports went to China last year, with more than half of that amount coming from soybeans.

Baize said he heard about a Chinese businessman in the soybean industry who was expressing frustration with Beijing's decision to target U.S. soybeans, particularly given how critical the commodity is as a feed source for the farm sector. "They are mad as hell with their own government," he said. "They said, 'What the hell are they doing?'"

Still, it’s unlikely Chinese executives are pushing too hard in public.

Trade watchers say Chinese buyers are paying a $35-a-ton premium for Brazilian soybeans to get around the recent duty imposed on U.S. beans, while also planning to buy more product from other global suppliers, including Russia, Ukraine, Paraguay, Uruguay and Canada. China has already tripled the amount of soybean purchases from Russia so far this year.

In recent weeks, the Chinese also have resold about 123,000 tons of U.S. soy to new buyers and in the months leading up to the new tariffs canceled more than $100 million in soybean purchases.

"I know why China chose soybeans, because it hits President Trump's base," said Baize. "But I have a feeling that this was done by politicians who don't necessarily understand animal feed. Now they may be recognizing that they made their point but also may hurt themselves a lot more than they hurt us by picking soybeans."

Besides soybeans, American pork produced in the heartland states also has been affected by Chinese tariffs. One in four hogs raised in the U.S. is sold overseas, and the Chinese are big buyers of the animal. China started collecting an additional 25 percent tariff last Friday on imported U.S. pork, which when added to the previous import taxes means a tax exceeding 70 percent.

President Donald Trump has previously offered to make it up to farmers, and USDA Secretary Sonny Perdue has spoken several times about Trump instructing him to craft a plan to help protect farmers and agricultural businesses. But the administration has provided few details on its "playbook."

“It would be unwise to unveil the playbook while other nations are watching, but if conditions warrant, USDA will quickly begin fulfilling that promise to support producers who become casualties of these disputes," a USDA spokesperson said in a statement Tuesday.

Agriculture executives say they have proposed plans to the administration that include helping some industries that are not currently part of subsidy programs, such as providing more federal spending for marketing support activities to develop new customers overseas. Other ideas have included increasing federal research spending to fight disease-carrying bugs, such as those that devastate citrus plants.

IHS' Behravesh said it's not surprising that the Trump administration would try to be reassuring to the farm sector since it's part of the president's base that got him elected in 2016. But in the end, he said, it's doubtful the White House will offer much in the way of a "lifeline" to agriculture or other industries, including the auto sector.

"From a political perspective, there maybe some symbolic stuff that's done to say, 'Look what we did for the U.S. farmers,'" said Behravesh. "But I don't think it will be enough to offset some of the hurt — whether it's soybean farmers or lobstermen in Maine."

The White House didn't respond to a request for comment.