MOUNT JULIET, Tenn. (DTN) -- The U.S. imposed a 25% tariff on $34 billion worth of Chinese goods shortly after midnight Friday, meeting with immediate, equal retaliation from Beijing.
President Donald Trump said the total amount of tariffs could swell to $500 billion over time, enough to cover everything the U.S. imports from China. But for American farmers, the opening salvo has already turned a once-profitable outlook into a challenging market.
"The tariff deadline arrived early Friday, U.S. tariffs went into effect, as expected, and investors are so rattled that November soybeans are trading up 3/4 cent in the early morning hours," DTN Analyst Todd Hultman said. "Obviously, there is something to be said for anticipation as the same November soybeans had already dropped over $2.00 a bushel from their high in late May. Friday's subdued reaction doesn't necessarily mean that soybeans can't go lower, because the U.S. is threatening to impose more tariffs against China. But it is fair to wonder if the bulk of the bearish damage has been done as far as the trade war is concerned," he added.
China's retaliatory tariffs include soybeans, pork, poultry, grain and numerous other products. Although the tariffs are in effect, the long-term impact on the agricultural economy remains unclear. China is currently purchasing the bulk of its soybeans from Brazil, and usually switches to U.S. origin when harvest begins in the fall.
"China's imports from Brazil's record soybean harvest is expected to run down sometime in September, leaving China dependent on U.S. soybeans from October to February," Hultman said. "Recently, FOB soybean prices have already widened so much between Brazil and the U.S. that Friday morning's soybeans in New Orleans are 98 cents a bushel cheaper than those in Brazil."
Bloomberg reports export demand in Brazil has risen so much that Brazil's domestic soybean processors could buy up to 1 million metric tons of U.S. soybeans this year.
An official statement from the Chinese Ministry of Commerce said the U.S.' tariffs violate World Trade Organization rules and have "ignited the largest trade war in economic history. Such tariffs are typical trade bullying, and this action threatens global supply chains and value chains, stalls the global economic recovery, triggers global market turmoil and will hurt more innocent multinational corporations, enterprises and ordinary consumers. It will harm, not help, America's businesses and people."
China reiterated its pledge to continue with economic reforms, including improving intellectual property protections. Tariffs that went into effect on Friday are aimed at punishing China for its policies forcing foreign businesses to form joint partnerships with Chinese companies and transfer technology in order to do business in the country.
Farm groups worked up until the deadline to convince the White House to change its position, including a #FacesofTariffs campaign on social media, arguing they're getting caught in the middle of a conflict that's related to agricultural trade.
"It is imperative that we maintain the robust market we have worked so hard for decades to establish with China," Keota, Iowa, farmer and American Soybean Association President John Heisdorffer, said in a statement on Tuesday. "China is our top market, importing 31% of our crop last year. They have a sizeable feed industry that's dependent on soybeans, the largest swine herd in the world, the largest global aquaculture industry and are rapidly modernizing their poultry, egg, dairy and beef industries. They are a vital trading partner, and we need to continue to do business with China without the sting of these tariffs."
On a call with reporters on Thursday, Iowa Senator Charles Grassley said Congress may need to review trade laws from 1963 and 1974 that he said may have "delegated too much discretion to the president."
"The administration needs to tread lightly when it comes to trade. As a result of tariffs... the prices of ag commodities have dropped significantly in recent weeks. Farmers who had hopes of breakeven this year could now see significant losses," Grassley said.
Agriculture Secretary Sonny Perdue has said the administration will help farmers dealing with the fallout from tariffs, but hasn't revealed details. Grassley said he hasn't talked to Perdue about assistance, but suspects it will be similar to what's been done in the past through USDA's Commodity Credit Corporation.
Katie Dehlinger can be reached at Katie.firstname.lastname@example.org
Follow her on Twitter @KatieD_DTN
© Copyright 2018 DTN/The Progressive Farmer. All rights reserved.