China hits soybeans, aircraft in counter-punch to Trump tariffs
Palm oil can benefit as one of potential edible oil substitutes
WASHINGTON: China said it would levy an additional 25% tariff on imports of 106 US products including soybeans, automobiles, chemicals and aircraft, in response to proposed American duties on its high-tech goods.
Matching the scale of proposed US tariffs announced the previous day, the Commerce Ministry in Beijing said the charges will apply to around US$50bil of US imports. Officials signalled that the implementation of the proposed measures will depend on when the US applies its own after a period of public consultation.
The step ratchets up tension in a brewing trade war between the world’s two largest trading nations, with the Trump administration’s latest offensive based on alleged infringements of intellectual property in China. In targeting high-tech sectors that Beijing is openly trying to promote, the US has provoked furious rhetoric from Beijing and stronger threats of retaliation than many had anticipated.
“China’s response was tougher than what the market was expecting – investors didn’t foresee the country levying additional tariffs on sensitive and important products such as soybeans and airplanes,” said Gao Qi, Singapore-based strategist at Scotiabank.
“Investors believe a trade war will hurt both countries and their economies eventually.” Asian stocks fell, with the MSCI Asia Pacific Index declining 0.4% to the lowest in more than seven weeks. The yen advanced.
Beijing’s proposed targets strike at the core of commercial relations between the two countries, and at some of the most politically sensitive goods in core Trump constituencies.
For example, China is the world’s largest soybean importer and biggest buyer of US soybeans in trade worth about US$14bil last year.
The US list of planned charges on more than 1,300 product categories focused on China’s industrial machinery and technology exports. China’s envoy to the WTO, Zhang Xiangchen, called it “an intentional and gross violation of the WTO’s fundamental principles of non-discrimination and bound tariffs.”
Industries including aerospace, information and communications technology, robotics and machinery were among those targeted by the USTR on Tuesday. It said it chose products to minimise the impact on the US economy and consumers.
In addition to advanced technologies such as communication satellites, the US list includes things ranging from various types of steel to television components, medical devices, dishwashers, snow blowers and even flame throwers.
“The US list suggests that the government is targeting the ‘ Made in China 2025’ initiative, while China’s retaliation intends to bring Americans back to the negotiation table,” said Zhou Hao, an economist at Commerzbank AG in Singapore said in an e-mail.
“The US proposal on tariffs aims to hit China’s industrial ambitions without hurting US consumers,” said Tom Orlik, chief Asia economist at Bloomberg Economics in Beijing. “On both objectives, it will likely fall short. “In sum, we think the macro impact will be limited and the strategic objectives difficult to achieve.”
PETALING JAYA: Crude palm oil (CPO) stands to benefit from China’s latest move to impose 25% tariff on soybean imports from the United States, say analysts.
In the global edible oil market, CPO is seen as a major rival to soybean oil. Both commodities can be substituted for use in the food-processing industry and are often seen competing in major edible oil markets such as China and India.
China is the world’s largest soybean importer and also the biggest buyer of US soybean, with trade estimated at US$14bil last year.
According to analysts, the higher tariff by China on US soybean was a big slap in the US agriculture industry’s face. Bloomberg reported that soybean futures on the US Chicago Board of Trade yesterday dropped as much as 5.3%, while wheat and corn futures also slid on news of China’s higher import tariff on US soybean.
Meanwhile, reflecting the positive sentiment on the CPO market, the CPO futures contract for June on Bursa Derivatives yesterday reversed its losses to close RM18 higher at RM2,454 per tonne in late trade.
China was the third-largest export market for Malaysian palm oil in 2017, with an intake of 1.92 million tonnes after India (2.03 million tonnes) and the European Union (1.99 million tonnes), an increase of 1.9% from 1.88 million tonnes.
This increase was due to the lower import of soybean (as bean) from the US for crushing, recording a decline of 2.4% to 32.85 million tonnes in 2017 compared to 33.66 million tonnes in 2016.
MIDF Investment Bank senior research analyst Alan Lim Seong Chun told StarBiz that China’s reciprocal tariff on the US soybean imports is positive for the CPO price, “as we expect higher China demand for palm oil in the long run”.
He expects the 25% tariff to lead to lower purchase of soybean from the US, leading to a lower crushing volume of soybean in China.
“In the long run, we expect a lower soybean oil, which is a by-product of the soybean crushing supply in China.
“On the other hand, palm oil stands to benefit from this situation, as it is a common substitute for soybean oil for use in the food-processing industry.”
Meanwhile, CIMB Investment Bank in its latest report also expects China’s tariff on US soybean to have a positive impact on CPO.
Its head of Malaysia research and regional head of agribusiness research Ivy Ng said: “China accounted for 52% to 76% of US soybean exports in the past two years.
“The concerns over potential trade barriers on US soybean by China could lead to weaker soybean prices.”
She also viewed the new tariff by China as making US soybean less competitive, with China potentially shifting some of its demand for soybean to South American farmers.
“The potential additional tariffs on US soybean could lead to higher soybean prices in China, and higher domestic prices could potentially lead to weaker demand for soybean meal.
“This, in turn, could lead to lower soybean crushing activities in China, resulting in lower soybean oil supplies,” explained Ng.
In the medium term, she pointed out that palm oil could benefit as one of the potential edible oil substitutes in China due to its attractive pricing relative to soybean oil.
“In our view, stronger demand for palm oil will help support or boost palm oil prices,” Ng added.