Soybean farmers fear steel tariff backlash, but analysts sceptical
The lobby group representing US soybean farmers said Thursday that US taxes on steel and aluminium imports would be “devastating” for its soybean industry if retaliatory measures by China target US exports of the oilseed, although analysts are sceptical it would come to that.
On Thursday, US President Trump said he will impose tariffs of 25% on steel and 10% on aluminium imports in what is seen as an escalation of a US trade spat with China, Canada and Mexico.
Reacting to Thursday’s statement, the American Soybean Association (ASA) said it was “extremely concerned” that soybeans could be targeted and warned that it could further hobble the industry.
“The tariffs announced today by the administration will put the interests of other domestic industries over farmers,” said John Heisdorffer, ASA president.
“These tariffs could lead to retaliation from China and would significantly endanger the current trade relationship between the US and China for soybeans,” he said.
Soymeal prices in China moved up 3.4% to 3,131 yuan per mt ($493/mt) on the Dalian exchange, as buyers and speculators priced in the chance that China would tax soybeans in return.
However, analysts claim that retaliatory action on soybeans would likely be viewed as excessive by the Chinese government.
No big impact
China imports around $14 billion worth of soybeans every year and the oilseed accounts for two-thirds of all US agricultural exports to China.
Yet China accounts for just 2% of US steel imports compared with 25% that come from Canada and Mexico, 13% from Brazil and 10% from South Korea.
“The direct impact on China’s economy is not going to be great at all, but if you read the investigation then all the blame has been laid at China’s door,” said Caroline Bain, chief commodities economist at London Economics.
Adding that she expected that there would be some retaliation as a result, Bain said: “I don’t think this is going to be enough to push China to use it soybean card.”
Other analysts agreed.
“It’s a question of a measured response, it is unlikely that they will get what is in the end a small type of sanction in the broader scheme of things and then retaliate with a broadside against soybeans,” said Hans Hendrischke, professor of Chinese business and management at the University of Sydney Business School.
"If China hits back on soybeans it is really going to hurt. But it may not come down to that. Maybe having a trade war at this juncture in time is not of a priority may not be the best thing to do. I think perhaps the Chinese government reaction this time might be less severe," Haiyan Wang, a professor at INSEAD in Washington DC, told CNBC.
One of the biggest challenges for China is that any move to target US soybeans would come at a time when global supply is shrinking.
Drought across world number three grower Argentina is expected to cut annual production there by almost 14 million mt – equivalent to 4% of global supply of 350 million mt.
China imports around 100 million mt of soybean out of a total 150 million mt traded, while the US exports 60 million.
That makes it hard for China to source beans elsewhere, said Bain.
No immediate response
Trump has pledged to tackle what he believes to be unfair trade practices since before his election in November 2016 and last year asked advisors to review whether the volume of steel and aluminium imports were a threat to national security.
The latest escalation follows January’s announcement by the US that it would tax imports of solar panels and washing machines.
Yet while that triggered an immediate response from China, which said it would investigate whether US sorghum was be dumped, so far China has been slow to respond with specific measures to steel and aluminium tariffs.
Foreign ministry spokesperson, Hua Chunyin, said China will “take necessary measures to safeguard its legitimate rights and interests” and adding that if other nations act like the US “this will undoubtedly result in a serious impact on the international trade order.”