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China Slapped 178.6% Tax On U.S. Sorghum Effective Today, And American Farmers Are Jumping



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Apr 18 2018
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Effective today (Wednesday), U.S. companies will be required to put down a 178.6% deposit for sorghum shipments to China. Beijing calls it a “temporary anti-dumping measure”. But every Tom, Dick and Harry knew this is nothing but a slap in the face for Trump administration. This is a warning shot that China refused to be bullied or humiliated.

 

China actually began a probe into sorghum imports from the U.S. on 4th February, just weeks after U.S. President Donald Trump slapped tariffs on imported solar panels and washing machines. Taking the cue from Washington, Beijing launched its own anti-dumping investigation and concluded that the U.S. was dumping sorghum on the Chinese market, hurting its domestic producers.

 

Sorghum, an American-made cereal grain that is used as a cattle feed and sweetener for baijiu, the popular Chinese liquor. China imported about 4.8 million metric tons of sorghum from the U.S. in 2017, worth about US$957 million. American sorghum farmers are jumping after China’s Ministry of Commerce announced the duty – which is higher than expected.

American Sorghum Farmer

China Baijiu

The new tax on sorghum puts Trump-friendly state such as Kansas – the largest sorghum producer in the country – in the crosshairs of the trade war. Jesse McCurry, executive director of the Kansas Grain Sorghum Commission, said – “It’s extremely frustrating and very disappointing. Half of Kansas sorghum or more was going to China, and that probably stops, at least for now.”

 

Kurt Winter, a sorghum farmer in Sedgwick County, Kansas, just outside Wichita, said – “We knew this was hanging over our heads. But when we heard the news this morning, it was still just devastating to us. It’s really going to put the hammer to our price prospects.” Kansas Governor Jeff Colyer said the state exported nearly US$416 million in sorghum to China in the last 3 years.

 

Mr. Colyer said the new duty “directly hits the pocketbook of farmers across Kansas”. In the 2016 Presidential Election, Donald Trump won Kansas with 56.6% of the vote. In addition to Kansas; Texas, Arkansas and Oklahoma are among the top sorghum-producing states. Trump won Texas (52.2% votes), Arkansas (60.6% votes) and Oklahoma (65.3%) in 2016.

Kansas Sorghum Grain Products

But sorghum isn’t the only agriculture products that suffer from the Chinese 178.6% tax duty. The effect can be seen in the sudden jump of soybean meal price, as the news raised concerns that China would also impose similar steep penalties on soybeans and other agricultural products from the United States as a trade war escalates.

 

And like sorghum, China is the biggest buyer of U.S. soybeans. More than half of U.S. soybeans exports (worth US$14 billion in 2016) go to China. Earlier this month, the Chinese said that it planned to levy an additional 25% tariff on about US$50 billion of U.S. imports including soybeans. The retaliation tariffs matched the scale of proposed U.S. tariffs announced a day earlier.

 

If China makes good on its promise to impose extra 25% – or even higher – on American soybean, more Trump-friendly states such as Iowa, Indiana, North Dakota and Nebraska will be affected. Donald Trump won Iowa (51.1% of the vote), Indiana (56.9%), North Dakota (63%) and Nebraska (58.7% of the vote) in the 2016 Presidential Election.

United States Soybean - US Dollar

Although it’s a “temporary anti-dumping measure”, analysts fear the hefty 178.6% duty on sorghum could be just the beginning of a new round of trade disputes between China and the United States, and soybean could be the next target. However, in what appears to be a game of “tai-chi”, China also announced some goodies for Trump administration.

 

To appease Donald Trump so that he could save face, Beijing announced plans on Tuesday to allow full foreign ownership of automakers in 5 years, ending some restrictions that have helped fuel its trade dispute with the U.S. president. Essentially, rules that require global automakers to work through state-owned partners, an arrangement that forces them to share technology, will be scrapped.

 

Trump has been complaining that China was hampering trade by charging a 25% import duty on most cars while the U.S. charges less than 3%. Global automakers such as General Motors and Volkswagen are only allowed to own maximum 50% of a joint venture with a Chinese partner and were limited to two ventures.

US-China Trade War - President Xi Jinping and President Donald Trump

Still, the fact that China put the duty on sorghum as a “temporary anti-dumping measure” means the Chinese is open to negotiation. They deliberately hiked the duty to 178.6% when the sector had expected a lower deposit of 35%. Japan could still buy some sorghum that had been destined for China, but definitely cannot absorb all the U.S. sorghum.

 

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