Bipartisan recommendations issued by a special House committee call for raising tariffs on Chinese exports and taking steps to protect U.S. farmers from the trade retaliation that would likely result.
The recommendations approved Tuesday by the House Select Committee on the Chinese Communist Party are part of a broad plan to reset the U.S. economic relationship with China, a major market for U.S. soybeans and several other commodities.
The committee’s 53-page report stops short of recommending the United States revoke China’s permanent normal trade status, which essentially provides some limits on duties. Instead, the recommendations call for moving China to “a new tariff column that restores U.S. economic leverage.” The report said the tariff increase should be done “over a relatively short period of time” to prevent “avoidable disruptions.”
The recommendations go on to acknowledge the potential for Chinese retaliation and call for expanding market opportunities for agriculture exports beyond China. The report says USDA and the Office of the U.S. Trade Representative should “collaborate to determine alternative market access for agriculture exports that predominantly rely on the PRC market and offset the adverse effects of PRC retaliation.”
The report says Congress also should look to provide additional appropriations in the case of retaliation, a recommendation that echoes the Market Facilitation Program payments the Trump administration started providing to farmers when steep tariffs were imposed on China exports in 2018.
The proposals left some trade policy experts puzzling over how the recommendation for increasing tariffs could be implemented.
"I am not aware of any way that Congress could adopt new Column 2 rates for China that would not be tantamount to revoking PNTR," one trade specialist with a Washington-based think tank, responding on condition of anonymity, said in an email to Agri-Pulse. The expert said the United States would be required to notify the World Trade Organization of the change in treatment of China and that China would be free from commitments it made as they apply to the U.S.
It’s not clear whether this Congress will take up any of the proposals, but at the very least they could provide talking points for congressional and presidential candidates in 2024. Committee Chairman Mike Gallagher, R-Wis., said the recommendations taken as a whole provide “a balanced approach that adopts a more assertive posture to protect the American economy and our national security” when it comes to China.
The committee’s top Democrat, Raja Krishnamoorthi of Illinois, strongly endorsed the recommendations. “I'm proud that we were able to rise to the seriousness of the challenge, and we are presenting a unified message to the CCP and importantly to our allies, and partners around the world.”
Ahead of the report's release, a coalition of farm groups appealed to the committee not to call for revoking China’s PNTR status, saying that would “open up U.S. farmers and ranchers to immediate, additional retaliation from China.” A letter to the committee signed by more than a dozen farm groups cited an Oxford Economics Report estimating Chinese retaliation would ultimately slash U.S. ag exports by 30%.
Brian Kuehl, executive director of Farmers for Free Trade, which organized the letter, said in a statement after the recommendations were released, “While we are pleased that the Select Committee scaled back their PNTR stance, we need to ensure that any recommendation offered does not invite retaliation on American farmers.”
Responding to the recommendations, a spokesperson for USTR Katherine Tai said in a statement that she has long believed "this is the most consequential bilateral relationship in the world and requires a strategic, thoughtful, and deliberative approach. USTR welcomes congressional engagement on this issue and we will continue to work closely with our partners in Congress to forge bipartisan consensus.”
The recommendations also call for USDA to write an assessment of “U.S. dependency on critical agricultural products or inputs that could be exploited in the event the PRC or another foreign country weaponizes any of these critical dependencies.”
Another recommendation calls for USTR to “bring a comprehensive WTO dispute against the PRC's subsidization, support for state-owned enterprises, and nonmarket economy policies and practices with a broad coalition of countries documenting how the PRC has undermined a world trading system 'based upon open, market-oriented policies' and impaired the benefits that many members expect to receive from expanded trade with the PRC.”
The recommendations also call for USDA to write an assessment of “U.S. dependency on critical agricultural products or inputs that could be exploited in the event the PRC or another foreign country weaponizes any of these critical dependencies.”
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Joe Glauber, a former USDA chief economist who has also worked at USTR, said the higher tariffs called for in the recommendations would presumably provoke retaliation against U.S. exports, as happened during the Trump administration.
He said it would be difficult to find alternative markets very quickly. “Soybeans would be most affected but corn and other products would feel the impact. Brazil and Argentina would be the big winners,” Glauber said in an email to Agri-Pulse. “Brazil would be hard-pressed to supply China AND maintain its traditional markets, but they essentially did so in 2018-19.”
The United States exports half the soybeans it produces and about 60% of that goes to China, or 30% of the U.S. crop, said Scott Gerlt, chief economist for the American Soybean Association.
Rep. Dusty Johnson, R-S.D.“As far as just rearranging trade, you really can’t do that. China is irreplaceable,” Gerlt said. “If trade were to shut off tomorrow, it would have a very big impact on soybeans.”Under PNTR rules, China has a 3% duty on soy. China imposed a retaliatory tariff of 27.5% on U.S. soybeans during the trade war with the Trump administration, but those duties are not being collected now, Gerlt said.
USDA estimates China will import $29.5 billion in U.S. agricultural products in fiscal 2024, more than any other country, ahead of Mexico and Canada at $27.9 billion and $27.7 billion respectively.
Total U.S. ag exports are estimated at $169.5 billion for FY24, $32 billion of which is projected to be in soybeans, and soybean meal and oil.
China committee member Dusty Johnson, R-S.D., voted for the recommendations but cautioned that Congress and the administration had to “make sure that the provisions in this report are implemented, are executed and are maintained for national security purposes rather than for protectionism or for industrial policy.”
Johnson, who also is a member of the House Ag Committee, said the China panel should be “focused on implementation that furthers fair markets rather than holds them back.”
Rep. Jake Auchincloss, D-Mass., opposed the report, saying “threads of industrial policy and protectionism run too strongly through it.”
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