In response to reports that the US is ramping up the "third front" in its trade spat with China by authorizing another investigation under Section 301 of the Trade Act of 1974 - this time, aimed at obstacles that prevent US tech firms from competing in cloud computing and other high-tech industries - China has, as we anticipated, retaliated by slapping tariffs on US sorghum imports.
Yesterday, the US also revealed that it would stop US tech firms from selling components to Chinese telecom giant ZTE after accusing the company of lying during settlement negotiations - eliciting an angry response from Chinese officials, who urged US lawmakers to create a "fair, just and stable legal and policy environment" for Chinese companies, according to Xinhua.
Like Chinese tariffs on US pork products that were imposed earlier this month, the sorghum tariffs aren't merely a threat: Rather, China says they will take effect on Wednesday, per Bloomberg.
US sorghum imports will incur a 178.6% tariff, China’s Ministry of Commerce said in a preliminary ruling on Tuesday. Wang Hejun, chief of the trade remedy and investigation bureau at the Ministry of Commerce, said the tariffs comply with domestic law and World Trade Organization standards.
The ruling follows a probe into Sorghum imports that began in February after Trump slapped tariffs on imported solar panels and washing machines - a decision that was viewed as an indirect slight at China.
The tariffs come as a shortage of domestic grain has forced domestic feed mills to increase shipments of US grain. Yet, despite the shortage, analysts say the tariffs will force some shipment cancellations.
"The rate is quite high and some buyers may have to cancel shipments," said Li Qiang, chief analyst with Shanghai JC Intelligence Co.
China imported about 4.8 million metric tons of sorghum from the US in 2017, worth about $957 million (this number isn't a coincidence, we imagine). Purchases in the first two months of 2018 were 11% lower than a year earlier.
According to Bloomberg, after the tariffs were announced, soybean meal for September delivery on the Dalian Commodity Exchange climbed 2% to close at 3,265 yuan ($520) a ton. The most-active contract climbed more than 2.5 percent in the final 20 minutes of trading.
"Market participants might translate the temporary deposit of sorghum as the start of a new round of trade disputes between China and the U.S., triggering concerns over soybeans," said Monica Tu, an analyst at Shanghai JC Intelligence.
China said earlier this month that it planned to levy an additional 25 percent tariff on about $50 billion of U.S. imports including soybeans. The move matched the scale of proposed U.S. tariffs announced a day earlier. The U.S. is allowing 60 days for public feedback and hasn’t specified when the tariffs would take effect, leaving a window open for talks.
Hua Chunying, a spokeswoman for China's Foreign Ministry, which has been one of the vocal mouthpieces for trade-related issues, said during the regular press briefing in Beijing that China is ready to impose trade countermeasures, and that, despite the US sending "confusing" signals about currency manipulation, the country is continuing to move ahead with its reforms.
The news hasn't impacted US equity markets so far. But that could change as more US equity traders arrive at their desks.