China’s announcement Monday that it will raise tariffs on $60 billion of American goods compounds the pain in what is fast becoming all-out trade war between the two countries as U.S. farmers, chemical makers and others brace for a further hit to revenue.
“Effectively, that market (China) is closed to U.S. exporters,” says Ed Brzytwa, director of trade for the American Chemistry Council.
After a week of Twitter optimism and threats, U.S. trade talks with China end without a deal, and higher tariffs go into effect. John Fritze reports. USA TODAY
China said it’s lifting the tariffs from a range of 5% to 10% to as much as 25%, with many goods set to be taxed at the upper limit. The higher duties are scheduled to take effect June 1. About 5,000 products are affected, including beef, fruit, vegetables, coats, refrigerators, furniture and electric saws.
Chinese officials announced the countertariffs after the Trump administration on Friday raised tariffs on $200 billion in U.S. imports from China from 10% to 25%.
The retaliatory tariffs China unveiled alone won’t significantly ding the U.S. economy, cutting economic growth by about a tenth of a percentage point next year if the trade fight isn’t resolved, according to Oxford Economics and Moody’s Analytics. But all existing U.S. and Chinese duties, including those announced Monday, will shave growth by three-tenths of a percentage point next year, says Oxford economist Greg Daco. Moody’s chief economist Mark Zandi expects an even bigger impact of nearly half a percentage point.
The fallout for investors has been more prominent. The Dow Jones industrial average tumbled more than 600 points Monday. That’s partly because multinational corporations with significant exports could see less revenue and profits, Zandi says. The bigger toll is on business confidence and investment, he says.
“It raises the probability of a full-blown trade war, which will hammer earnings,” Zandi says.
So far, China has slapped tariffs on $100 billion in U.S. goods. As a result, U.S.exports to China fell 7% in 2018, according to the U.S.-China Business Council. And Chinese investment in the U.S. was down 60% last year, “in part because of added scrutiny applied to proposed deals and a souring political climate,” the group says.
U.S. farmers, who have been especially affected by China’s tariffs last year, are likely to suffer an additional blow.
John Heisdorffer, a soybean farmer in Keota, Iowa, has lost about $10,000 since China put a 25% levy on U.S. soybean shipments last year as prices fell from more than $10 a bushel to about $8. U.S. soybean exports to China effectively halted before rising modestly recently as part of Chinese concessions during negotiations. Heisdorffer says he has cut back on investments in new equipment.
After Monday’s news, soybean futures fell another seven cents. Although soybeans aren’t directly affected by the latest round of Chinese tariffs, various soy-related oils and extracts will be hit.
“I thought it was going to be resolved last week,” Heisdorffer says. “I don’t know what to think now. It continues to ratchet down the amount of cash we have to pay bills.»
If the conflict drags on, he says, there won’t be anything left to give his son, who plans to take over the farm when Heisdorffer, 67, retires.
Heisdorffer, who is chairman of the American Soybean Association, also worries the number of soybean farmers who go bankrupt will increase substantially if the latest Chinese tariff isn’t removed. “People are going to be hanging by a thread,” he says.
Stefanie Smallhouse, president of the Arizona Farm Bureau, said the prospects of tariffs that could undercut exports to China come at an already bad time for the state’s agricultural industry.
Farmers and ranchers already have been paying higher prices for equipment, seed, fertilizer and other expenditures – partly due to tariffs that raised the price of steel and aluminum imported into the U.S. Plus, they face uncertainty in exporting to Mexico and Canada pending approval of a revamped North American trade agreement.
“We’re being squeezed on both sides,” said Smallhouse, who with her husband owns a livestock ranch near Tucson. “At this point, it’s a downhill slide.”
Longer term, the tariffs and heightened trade tensions mean farmers and ranchers face missed opportunities and the prospect of losing market share in China, which she described as an important export destination for Arizona agricultural products, especially dairy and meat.
China also represents the third-largest export market for U.S. chemical makers. Last year, U.S. chemical exports to China rose just 2.7% after notching double-digit gains in 2016 and 2017. The U.S. offers high-quality, inexpensive products, largely because of cheap prices for natural gas, a feedstock for many chemicals used to make plastics, oil-related goods, pharmaceuticals, construction and other products in China, Brzytwa of the ACC says.
With many chemical makers eyeing China as a prime market, about $200 billion in new factories are being planned in the U.S. But some could move to other countries if the newest tariff remains, Brzytwa says. Meanwhile, Chinese manufacturers could shift their chemical purchases to domestic suppliers or other Asian countries.
BASF, a Germany-based chemical manufacturer with more than 100 facilities in North America, said it’s «concerned about the U.S. announcements, and the response of several of its trading partners, to impose import tariffs on a wide range of products that could affect the chemical industry and its numerous customer industries.»
The company said it’s still assessing the potential effects of the latest round of increased Chinese tariffs on its American operations.
Contributing: Russ Wiles, Arizona Republic; Yan Zhang; Nathan Bomey
Congressional Republicans and Democrats said they hoped the tariffs on Chinese goods are short-lived. While Republicans praised the president for being «tough» on China, Democrats worry the move will have a negative impact on the U.S. economy. (May 10) AP, AP