U.S. Envoy Says China Retaliation on Soybeans Would Backfire

(Bloomberg) -- U.S. Ambassador Terry Branstad warned China against retaliatory measures aimed at imports of American soybeans, as the world's two largest economies edged closer to a trade war.

The former Iowa governor told Bloomberg Television on Thursday that any effort to curb U.S. soybean imports would harm regular Chinese citizens more than American growers. The crop provides a key source of protein, including as feed for hogs, for the country's growing middle class, Branstad said in an interview at the U.S. Embassy in Beijing.

“It doesn't make sense and it would hurt the Chinese consumers,” Branstad said when asked about possible retaliation on soybeans. “Ultimately, the Chinese will realize we need to work together on these issues and retaliation is not the answer, but instead collaboration and cooperation to address the issues that have been around for a long time.”

New measures against soybeans by China, the world's biggest importer, would be a significant escalation in trade tensions. Curbs would hit farmers in Midwestern U.S. states crucial to President Donald Trump's efforts to retain Republican control of Congress in November elections and risk pushing up feed costs for the world's largest pork producer and consumer, in turn boosting meat prices.

China is the biggest buyer of American soybeans, picking up about one-third of the entire U.S. crop, which it uses largely to feed 400 million or so pigs. China has studied the impact of restricting soybean imports in retaliation for U.S. tariffs on washing machines and solar panels, people familiar with the situation Bloomberg last month.

Read More: China's Most Powerful Weapon in Trump Trade War May Backfire

“We need to work aggressively convince the Chinese that some of these barriers need to go down and we need to have more fairness and reciprocity in the whole trade relationship,” Branstad said. “It took us 14 years to get the beef market reopened and we still don't have it reopened for eggs and for chickens, so there's a lot that needs to be done.”

A newspaper affiliated with China's ruling Communist Party this month urged “strong restrictive measures” against alleged U.S. soybean dumping, underscoring concern that trade disputes pressed by Trump could spill into other sectors.

The U.S. had a record $375 billion trade shortfall with China last year. Trump wants a $100 billion reduction in America's trade deficit with China this year, as well as action on intellectual property, White House trade adviser Peter Navarro told Bloomberg Radio on Monday.

Trump's plan to slap tariffs on about $50 billion in Chinese imports sparked a sell off in stocks across the globe last week and raised the specter of a wave of retaliation. China has repeatedly warned it would defend itself.

Earlier Thursday in Beijing, Commerce Ministry spokesman Gao Feng said China won't submit to unilaterally coerced negotiations and doesn't rule out any options to defend its interests. U.S. tariffs set a bad precedent and cast a shadow on the global economy, he said at a briefing, and reiterated that Beijing hopes the U.S. will solve disputes via dialogue.

The U.S. is pushing China to lower tariffs on cars and open its financial services market as the two sides seek to resolve tensions, according to a person familiar with the matter. Talks have been stalled since a meeting last year through their main vehicle of negotiation, known as the Comprehensive Economic Dialogue, ended without a joint statement.

The world's biggest trading nation also is set to complain to the World Trade Organization about new U.S. tariffs on steel and aluminum imports, from which Canada, Mexico and the European Union among others have been exempted.

North Korea

Chinese investments in technologies the U.S. deems sensitive have also come under scrutiny, and the U.S. is considering limiting them by invoking a law reserved for national emergencies, among other options, according to people familiar with the matter.

Branstad spoke after North Korean leader Kim Jong Un visited Beijing to meet with President Xi Jinping, which was announced after his departure. What appears to have been a warm meeting after a period of frosty ties may undermine Trump's plans to maintain “maximum pressure” to induce North Korea to abandon its nuclear weapons and missile programs. Trump may also meet Kim in May.

“When I met with the Chinese officials they informed me that they are enforcing the sanctions,” Branstad said. “That's the reason why we've seen a change in attitude on the part of Kim.”

--With assistance from Isabel Reynolds and Dandan Li

To contact Bloomberg News staff for this story: Tom Mackenzie in Beijing at tmackenzie5@bloomberg.net, Xiaoqing Pi in Beijing at xpi1@bloomberg.net.

To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Jeff Kearns

©2018 Bloomberg L.P.

With assistance from Tom Mackenzie, Xiaoqing Pi