Trade war | Trump heartland hit as China targets farms and mines

Corn is harvested in Princeton, Illinois

China’s response to U.S. tariffs aims to hit the Trump administration right in its natural resources.

The world’s largest commodities consumer on Friday said it will levy a first round of tariffs on USD34 billion worth of U.S. agriculture products, as well as automobiles, starting July 6. Another $16 billion in goods, including coal and oil, will be subject to tariffs later. The escalating dispute sent the prices of everything from soybeans to copper lower and hit the shares of U.S. coal producers while boosting the prospects for alternative suppliers like Brazil.

By focusing on agriculture and energy, the tariffs target rural communities in states that voted for Trump in 2016. Beijing’s announcement came less than 12 hours after the U.S. released its list of $50 billion worth of Chinese products subject to tariffs. As recently as May, the Asian nation said it would seek to buy more U.S. agricultural and energy products as part of a tentative trade truce between the two countries.

AGRICULTURE

Farm commodities have been a key battleground in the trade war between the world’s two biggest economies. In April, the Asian nation started levying additional taxes on American fruit, nuts, pork and wine in response to Trump tariffs on steel and aluminum. Products affected include soy, corn, wheat, rice, sorghum, beef, pork, poultry, fish, dairy products, nuts and vegetables.

The list covers almost all farm products imported from the U.S., said Li Qiang, chief analyst with Shanghai JC Intelligence Co. Ltd. “Given China’s big trade surplus with the U.S., it will be more difficult and complicated for China” in the future to retaliate if Washington expands the tariff to cover more products, said Li. The new list includes more agricultural produce, including dairy, alfalfa and seafood, than its initial list published in April.

In 2017, China’s agriculture imports from U.S. were worth $24.1 billion, the People’s Daily reported on May 24, citing customs data. That’s about 19 percent of total farm imports worth $125.86 billion, according to Ministry of Agriculture and Rural Affairs data.

COAL

The coal tariffs strike at the heart of Trump’s energy agenda. Since he was elected, the president has been trying to make good on a campaign promise to revive America’s coal industry. They also come as U.S. miners have grown increasingly dependent on foreign markets for growth. U.S. coal exports jumped by 61 percent in 2017 as shipments to Asia more than doubled.

A few weeks ago, China was looking at buying more from the U.S.. While it’s pursuing a long-term goal of using less coal, the country still produces, consumes and imports more than any other nation. It purchased 271 million metric tons from overseas last year, according to customs data. The U.S. exported about 3.2 million short tons to China, data from the Energy Information Administration show.

The total value of U.S. coal exported to China last year was about $395 million, based on an average price of $122 per ton, according to Bloomberg Intelligence. About 90 percent was metallurgical coal, which is used to make steel.

CRUDE

China has been a key recipient of American oil since a 40-year U.S. ban on exports was ended by then-President Barack Obama in 2015. The Asian nation is helping drive a surge in exports from the U.S. — China imported 18.4 million barrels of American crude and oil products in March, making it the third-biggest customer behind Mexico and Canada.

For China, the biggest importer of oil in the world, U.S. crude is just a small part of its portfolio, with major suppliers like Saudi Arabia and Russia having the biggest shares. China spent $162.3 billion on crude purchases in 2017, with just $3.16 billion of that going to the U.S.

GAS

China also said it would place tariffs on imports of natural gas, but its list only specifies the fuel in gaseous form, not the liquefied natural gas that it currently imports by ship from the U.S. China is the third-largest buyer of U.S. LNG, after Mexico and South Korea. Record production from America’s shale plays has allowed the U.S. to become a net exporter of the fuel for the first time since the 1950s.

The Asian nation is set to become the world’s largest importer of LNG in the next decade, and several proposed U.S. export projects are seeking long-term buyers to finance construction. Bloomberg New Energy Finance forecasts China’s imports will grow to 82 million tons a year by 2030, but the country has long-term contracts to supply just 42.5 million tons by then.

There have been signs of growing cooperation between the two countries. Earlier this year, China National Petroleum Corp. signed a 25-year deal with Cheniere Energy Inc. to buy U.S. gas. China Petrochemical Corp. has signed a joint development agreement with a proposed export plant in Alaska, and China Gas Holdings Ltd. has agreed to purchase 3 million tons of LNG a year from Delfin LNG’s proposed plant in the Gulf of Mexico.

CARS, WHISKEY

While U.S. automakers import few vehicles into China, the tariffs pose a significant threat to BMW AG and Daimler AG’s American factories that make vehicles both for domestic buyers and export markets.

Tesla Inc. also builds all of its vehicles in Fremont, California, and the tariffs could compromise affordability in its second-biggest market in the world. Revenue from deliveries to China surged 90 percent last year to $2.03 billion.

Other iconic American products on the list, like whiskey, may be more symbolic. Last year, China imported only $12.8 million worth of U.S. spirits, about 70 percent of which was whiskey, according to the Distilled Spirits Council. Brown-Forman Corp., the maker of Jack Daniel’s, doesn’t even list China as a top 10 market, though net sales growth there was in the double digits last year.

On Saturday, China’s Commerce Ministry announced it will collect anti-dumping deposits on imports of hydriodic acid and ethanolamine from the U.S., of which Iofina Chemical Inc. and Dow Chemical Co. are major suppliers. Alexander Kwiatkowski, Bloomberg