The future of U.S.-China trade talks is uncertain as the Trump administration moves to impose new tariffs on $300 billion of imported consumer and industrial goods from China, and U.S. companies prepare for higher costs of doing business.
The new round of tariffs would mean all imported Chinese goods entering the U.S. face duties imposed under Section 301 of 1974 trade legislation. In 2018, the U.S. imported $540 billion of Chinese products. The Section 301 tariffs currently apply to $250 billion in goods from China.
China, which has levied tariffs on $110 billion of imports from the U.S. is running out of goods to which it can apply tariffs. China imported $120 billion in U.S. goods in 2018. But it could still increase existing tariffs.
Beijing announced Monday that on June 1 it will increase tariff rates that are now between 5 percent and 10 percent. It said 2,493 products, including liquefied natural gas, honey, industrial tools and furniture, will face 25 percent duties. China also will impose duties of 20 percent on 1,078 products, 10 percent on 974 products and 5 percent on 662 products, the Associated Press reported.
Although President Donald Trump said in a series of tweets over the weekend that he is confident the U.S. will not suffer, he promised more financial aid to farmers, a key constituent that could face additional retaliatory duties by Beijing. The Agriculture Department is winding down a $12 billion aid plan that included more than $9 billion in payments to farmers.
“We will then spend (match or better) the money that China may no longer be spending with our Great Patriot Farmers (Agriculture), which is a small percentage of total Tariffs received, and distribute the food to starving people in nations around the world!” the president tweeted Sunday.
Joseph W. Glauber, a former Agriculture Department chief economist, warned that expanding federal purchases of U.S. crops to reduce price-depressing surpluses due to lost export sales could lead to challenges at the World Trade Organization by competitors that would argue the purchases are subsidies that exceed the limit set for the U.S. by the global trade organization.
“This has to be done for humanitarian assistance. If you put it into the markets in the name of humanitarian assistance, but all it looks like is a concessional sale and people are going to say, hey, that’s an export subsidy,” said Glauber, a senior research fellow at the International Food Policy Research Institute. ”Export subsidies now are prohibited by the WTO.”
Glauber said the U.S. worked hard to have the WTO bar export subsidies in 2015.
The president did not specify how much tariff money might be pumped into the programs, but he seemed to be calling for a massive expansion of the three primary international food programs — Food for Peace Title II administered by the U.S. Agency for International Development, Food for Progress, and the McGovern-Dole Food for Education and Child Nutrition program operated by the Agriculture Department.
The Trump administration called for the elimination of Food for Peace Title II and McGovern-Dole programs in its recent budget requests. On average, Congress appropriates a total of about $2 billion a year for all three programs. Some of the funding is used for buying food in areas closest to where the aid is needed and not from the U.S.
“I get the fact that prices are low and they want to do something to help farmers, but this is a way that exports your problems as well in a way that harms others,” Glauber said.
Tom Vilsack, agriculture secretary during President Barack Obama’ terms, said the administration has limited options for providing aid to farmers, many of whom have been digging into equity and savings after five years of low market prices. Vilsack, CEO of the U.S. Dairy Export Council, said the international food programs are not large enough to handle the billions of dollars in surplus corn, soybeans and other products.
“That’s a pretty tall order,” he said. “The sentiment is right, but the implementation could be very difficult.”
The administration could use the Commodity Credit Corporation, which is partly funded through customs receipts, as a source for aid, Vilsack said. The Agriculture Department tapped the CCC for the most recent trade aid program, which included $1.2 billion for purchases of agricultural products affected by retaliation. The products were distributed to food pantries and child nutrition programs.
Vilsack said USDA purchases of agricultural products might face fewer hurdles if used for domestic food programs. USDA already makes occasional fruit, vegetable, dairy or meat purchases in times of overproduction or low market prices.
Leaders of corn, wheat and soybean organizations say they sympathize with the Trump administration’s goals of ending China’s discriminatory trade and industrial policies, but remain nervous. They laid out their concerns in a joint statement Friday.
Lynn Chrisp, president of the National Corn Growers Association, said uncertainty over the outcome of U.S.-China talks is taking a toll.
“Farmers have been patient and willing to let negotiations play out, but with each passing day, patience is wearing thin,” Chrisp said.
After China announced its retaliation plan, American Soybean Association President Davie Stephens issued a new statement.
“The U.S. has been at the table with China 11 times now and still has not closed the deal. What that means for soybean growers is that we’re losing. Losing a valuable market, losing stable pricing, losing an opportunity to support our families and our communities,” Stephens said.
While Trump seemed ready to help farmers, he was less sympathetic to industries that rely on imported Chinese products.
“Buyers of product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries,” Trump wrote.
But business coalitions argue that changing supply chains can take years, not months.
Companies are still trying to cope with the May 10 increase of Section 301 tariffs on Chinese goods valued at $200 billion from 10 percent to 25 percent. The administration is providing a grace period until June 1 from the 25 percent rate for goods that were en route to the U.S. by May 10.
Douglas K. Barry, a spokesman for the U.S.-China Business Council, said the organization is advising members and other companies to brace for China to make doing business more difficult with increased customs scrutiny, tougher regulatory enforcement at the local level and declining demand and use of U.S. products.
Susan Monteverde, government relations vice president for the American Association of Port Authorities, said retaliation by China remains a major business concern.
“Whether it’s a U.S. small business or a U.S. manufacturer who uses Chinese goods, or a U.S. farmer who wants to export their products to China and are impacted by retaliatory actions, tariffs hurt our economy and every American,” Monteverde said in a statement.