China, U.S.: Weighing the Options for Future Trade Measures

3 MINS READFeb 5, 2018 | 23:16 GMT
Forecast Update

As Stratfor's 2018 Annual Forecast highlighted, continued unilateral U.S. action on trade measures can be expected to elicit responses from the countries most heavily impacted by them. As the United States continues to take unilateral measures against Chinese trade, Beijing is taking steps to push back.

China is pushing back against U.S. trade policy. According to the country's Commerce Ministry, Beijing is launching a year-long investigation into alleged U.S. subsidies and dumping practices for sorghum crop exports to China. Chinese imports of sorghum have increased rapidly in the last five years and, according to a ministry official, U.S. subsidies are impacting market prices in China and harming domestic sorghum producers.

The new Chinese investigation comes on the heels of a U.S. decision to increase import tariffs on both solar panels and washing machines. After Washington issued the increase, a response was expected from the countries hit hardest by those tariffs — namely South Korea, Malaysia and China. And the U.S. agricultural sector presents a logical arena for a tit-for-tat trade measure, given the large amount of U.S. agricultural products China imports — and the United States' dependence on exports for a number of crops.

Though a previous study mentioned soybeans or cotton as potential targets, China is the final destination for roughly two-thirds of all U.S. exports of sorghum. The sorghum market is significantly smaller than that of soybeans, but China is heavily reliant on imports to supply itself with the grain, and the United States is the country's primary supplier. However, sorghum is often used as a feed crop or in manufacturing biofuels and can be easily substituted if necessary. Sorghum may strike a key balance by disrupting a sector small enough to avoid a larger trade dispute while still pressuring the United States. But that dynamic may not continue indefinitely.

The larger the trade actions from Washington become, the greater the fallout could be for the industries Beijing chooses to target with proportional responses.

Any tariffs or non-tariff trade barriers on the crops that arise from China's investigation would primarily affect regions in the U.S. heartland that were firmly in support of U.S. President Donald Trump during the 2016 election — such as Kansas and Texas. The investigation will not be concluded before the 2018 midterm elections, but it does illustrate a potential strategy by which China can garner a political response by exerting influence on specific sectors. Though trade issues tend to have a small influence on individual voters, agricultural lobbies could step up their efforts to influence U.S. policy. But the biggest threat is from the next steps either country will take as they continue their dispute. The larger the trade actions from Washington become, the greater the fallout could be for the industries Beijing chooses to target with proportional responses.

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