China Grain Traders Wait for Beijing to Lower Tariffs Before Returning to US Market

December 3, 2018 Updated: December 3, 2018

BEIJING—China will need to drop its steep tariffs imposed on a range of American farm products earlier this year before it can fulfill its pledge to buy a “very substantial” amount of U.S. goods, said Chinese traders on Dec. 3.

China and the United States agreed on Saturday to refrain from setting additional tariffs that would further escalate a months-long trade war that has roiled global markets and halted sales of American soybeans to the world’s top buyer.

The temporary truce on trade followed talks between U.S. President Donald Trump and Chinese leader Xi Jinping at the end of a two-day gathering of world leaders in Argentina.

The United States said that Beijing had promised to buy an unspecified but “very substantial” amount of agricultural, energy, industrial and other products, with purchases of farm goods to start “immediately.”

But no substantial purchases can happen with a 25 percent duty still in place on U.S. soybeans, corn, sorghum and wheat, said buyers and analysts.

“How can you buy U.S. products if China does not reduce the tariffs? We haven’t made any move yet,” said a trader with a major Chinese trading house. He declined to be identified as he was not allowed to be quoted by media.

China’s tariffs on U.S. soybeans had earlier pushed the price of soybeans from Brazil, the world’s top supplier, so high that Chinese buyers could have imported American soybeans and paid the tariff for less.

But that premium has been significantly eroded in recent weeks after China built up large soybean stocks, and demand for soymeal declined in the wake of an African swine fever epidemic ravaging the country’s huge hog herd.

That has in turn made U.S. beans more than $60 per tonne more expensive than those from Brazil, which is due to begin harvesting a record crop in a few weeks time.

Graphic: U.S. soybean export prices more than $60/tonne above Brazil’s due to 25 pct tariff

Epoch Times Photo

Muted reaction in both the Chicago and Dalian futures markets on Monday underlined the lack of incentives for new purchases.

Chicago Board of Trade soybeans rose less than 2 percent while Dalian soymeal futures closed down less than 1.4 percent.

“The market isn’t impressed,” said Darin Friedrichs, Shanghai-based consultant at INTL FCStone.

Removing Tariffs?

But some said China could soon scrap its tariffs to show commitment to the trade truce. The foreign ministry said on Monday that the Chinese and U.S. presidents had instructed their economic teams to work towards removing all tariffs.

“Tariffs on U.S. soybeans might drop as the two sides enter a honeymoon period. It is expected that they will start sending out goodwill signals,” said Tian Hao, senior analyst with First Futures.

“China will for sure cancel the 25 percent tariffs on U.S. agriculture products. China has to do this, basically to get room to breathe,” said an executive at a state-owned trading house.

Until then, the only buyers likely to make purchases of pricey U.S. grain will be state-owned enterprises instructed by Beijing to buy soybeans for state reserves.

“If they have to buy something, then they can ask Sinograin to buy, the tariff is OK for reserves,” said another China-based trader with a global trading firm.

Graphic: Soybeans are by far China’s top agriculture import from the United States

Epoch Times Photo

By Hallie Gu & Dominique Patton