BEIJING -- China said Tuesday it's "fully prepared" for a trade war with the United States as hopes dwindle for a breakthrough in tensions this week between the world's two biggest economies.
Washington is scheduled to start charging tariffs on $34 billion in Chinese imports as of Friday while China has pledged to retaliate with equal tariffs on $34 billion in U.S. goods.
Foreign Ministry spokesman Lu Kang told reporters that China is "fully prepared to take a package of necessary measures" to safeguard its national interests.
U.S. soybean farmers, whiskey distillers and automakers like Ford and Tesla could suffer if China ramps up retaliatory measures. China's list is designed to inflict pain on U.S. farmers and other groups important to President Donald Trump's political base.
Soybeans are a key flash point in the worsening trade relations between the U.S. and China.
Chinese companies are expected to cancel most of the remaining soybeans they have committed to buy from the U.S. once the extra 25 percent tariff on U.S. imports takes effect. Soybeans are a top crop for Arkansas farmers, who produced 178 million bushels in 2017. About 40 percent of that crop was exported to China, according to the Arkansas Farm Bureau.
The price of soybeans for July delivery fell 5 cents Tuesday to settle at $8.43 per bushel on the New York Mercantile Exchange. In May, the price hovered near $10 per bushel.
China, the world's top soybean buyer, has yet to take delivery of about 1.26 million tons of U.S. soybeans booked for the current marketing year, according to U.S. Department of Agriculture data. The USDA reported last week that China had resold some 123,000 tons of committed deliveries to Bangladesh and Iran.
"These shipments will be either canceled or resold if extra tariffs are imposed," said Gao Yanbin, an investment manager with agriculture investment firm Shanghai Shenkai Investment Co. "The tariff rate is too high which will make crushers lose money."
Some cargoes will get through because shipments destined for state reserves are free from tariffs, Gao said. China holds unspecified volumes of state reserves of both domestic and imported soybeans. China had been forecast to buy 97 million tons of soybeans this year.
According to World Trade Organization data, China imposes a tariff on imported soybeans of zero to 3 percent, depending on the port of entry. China has five trade zones and each zone may have its own tariff. The United States does not charge a tariff on Chinese soybeans, according to the WTO, but rarely sees imports of Chinese domestic crops.
Analysts don't expect many soy cargoes from the U.S. to arrive after the Friday deadline as buyers have already stopped shipments. The Peak Pegasus bulk carrier will arrive before the deadline while the Aeolian Fortune and Kea have already arrived, according to Monica Tu, an analyst with Shanghai JC Intelligence Co.
Chinese companies have contracted to increase purchases from Brazil since April and soy inventories at major crushers are currently at the highest in years, according to the China National Grain and Oils Information Center. That's likely to change later in the year.
"There will be a supply deficit from the fourth quarter as crushers won't have enough supplies if they don't take U.S. soybeans," Gao said. Brazilian supplies fall to seasonal lows in the first and fourth quarters -- a period when China's imports are normally dominated by the U.S. The information center expects Chinese companies may need to import at least 10 million tons from the U.S. when South American supplies run down.
"If China intends to keep their crushing plant operating in the fourth quarter and early first quarter they will need to import U.S. soybeans even with a 25 percent tariff," as there are no other options to cover the shortage, said Paul Burke, North Asia regional director with the U.S. Soybean Export Council. China imported about 25 million tons from the U.S. in the fourth quarter of 2017 and the first quarter of 2018, according to customs data.
China will have the "world's most expensive soybeans," which may boost domestic prices of soybean meal and soybean oil, according to Jiang Boheng, an analyst with Luzheng Futures Co.
Trade friction also threatens to ensnare major Chinese companies, with China Mobile the latest to encounter obstacles in the U.S. market. A U.S. agency under the Department of Commerce recommended Monday against giving operating licenses to China's largest telecom carrier, citing national security risks posed by the state-run firm.
Lu, the Chinese foreign ministry spokesman, on Tuesday called the warnings "unfounded speculation and an irrational clampdown" stemming from a Cold War mentality.
"We hope the U.S. will provide a level-playing field for Chinese companies' investment and operation in the U.S. and do something conducive to the mutual trust," he said.
China's stock market has fallen nearly 10 percent in recent weeks on fears of a trade war while its currency has dropped sharply against the U.S. dollar.
The U.S. Chamber of Commerce pointed out the economic impact of current and proposed tariffs on Tuesday, doubling down in its opposition to the Trump administration's trade policy.
"Tariffs are beginning to take a toll on American businesses, workers, farmers, and consumers as overseas markets close to American-made products and prices increase here at home," U.S. Chamber President Thomas Donohue said in a statement. "The administration is threatening to undermine the economic progress it worked so hard to achieve."
The chamber represents more than 3 million businesses and is one of Washington's top lobbyist spenders.
Information for this article was contributed by Gerry Shih of The Associated Press; by Reade Pickert of Bloomberg News; and by the Arkansas Democrat-Gazette.
A Section on 07/04/2018
Print Headline: Soybeans key point in U.S., China fray