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With sorghum warning shot, Beijing targets Trump's core farm base

By Dominique Patton and Michael Martina

By Dominique Patton and Michael Martina

BEIJING (Reuters) - In launching a probe into U.S. sorghum imports, China has fired a warning shot across its top trading partner's bow that shows farmers in states that voted for U.S. President Donald Trump may be Beijing's top retaliatory target in the event of a trade war.

On Sunday, the Ministry of Commerce launched an anti-dumping and anti-subsidy investigation, potentially leading to hefty tariffs on imports of the ingredient used in livestock feed and the fiery Chinese liquor baijiu.

It comes less than a fortnight after Trump slapped steep tariffs on imports of solar panels and washing machines and two months after Washington's decision to investigate Chinese aluminum alloy sheet, the first U.S.-initiated anti-subsidy and anti-dumping probe in decades.

Those moves had rekindled concerns among global policymakers and markets of a U.S.-China trade war. (Graphic: China is the main destination for U.S. agricultural exports - http://reut.rs/2E1vxuc)

The United States accounts for more than 90 percent of total sorghum arrivals in China. U.S. imports were worth just over $1 billion last year.

The commerce ministry said it had initiated the investigation because the local industry included a large number of small growers who were unable to prepare the necessary documentation.

Chinese Foreign Ministry spokesman Geng Shuang said the issue was an "individual, normal trade remedy investigation case".

Deploying the rarely used tactic of self-initiating, rather than responding to complaints from farmers, suggests the probe had been in the works for some time, and was viewed by trade experts as retaliation for recent U.S. actions against China.

U.S. Commerce Secretary Wilbur Ross said China should conduct the investigation openly and transparently. "Politics play no role in anti-dumping and countervailing duty investigations in the United States, and should not affect the outcomes of the trade investigations conducted by foreign nations," Ross said in a statement.

The U.S. Trade Representative's office, which could seek a World Trade Organization challenge against any anti-dumping decision by China, declined to comment. The National Sorghum Producers and trade group U.S. Grains Council each said they would cooperate with an investigation.

China has used other niche farm products such as distillers' dried grains to hurt the United States in recent years.

But taking aim at sorghum at a time when the global grain market is in surplus and growers around the world are scrambling to find homes for their products hits at Trump's core political base while avoiding damaging supplies of a product critical at home.

Texas and Kansas, major Republican strongholds or "red states", produce most of the U.S. sorghum crop.

"They believe that if they ratchet up the heat in key red states where there's a large agricultural community that's voted for Donald Trump that it will somehow change the situation," said Paul Burke, Asia director at U.S. Soybean Export Council.

While many sorghum traders in China were surprised by the news, they said they would likely switch to buying from the nation's ample supplies of locally grown corn instead. China's state reserve is big enough to feed the country for a year.

POLITICAL RESONANCE

Business executives had expected Beijing to target commodities, a major U.S. export to China, in any response to the escalating trade dispute.

Last week Lester Ross, chairman of the policy committee at the American Chamber of Commerce in China, told reporters that China would take aim at sectors with "political resonance in the United States", such as commodities and aircraft.

With Trump threatening further action on steel and aluminum imports from China as well as alleged Chinese intellectual property rights abuses, the conflict could escalate further.

Many Chinese experts think politicians in Washington are not prepared to pay the heavy economic and political price needed to upset trade dynamics between the world's two largest economies, including a large Chinese trade in goods surplus.

But some business executives warn that invoking a Cold War-era trade law to impose tariffs on steel and aluminum could trigger a trade war, which could expand to other more critical commodities, such as soybeans, the United States' biggest agricultural export by value worth more than $12 billion last year.

China's commerce and agriculture ministries told a delegation of U.S. soy growers last September that soybeans were being considered as a target for retaliatory action, Burke said.

"We're watching the situation very closely," he told Reuters on Monday.

(This version of the story was refiled to add dropped word cooperate in paragraph 10)

(Reporting by Dominique Patton and Michael Martina; Additonal reporting by Hallie Gu and Ben Blanchard in Beijing, Michael Hirtzer in Chicago and David Lawder in Washington; Writing by Josephine Mason)