(Bloomberg) -- China said it will levy reciprocal tariffs on U.S. soybeans in a significant escalation of trade tensions between the two countries, sending prices of the oilseed in Chicago tumbling.
The Asian nation plans to impose 25 percent duties on a slew of U.S. agricultural commodities such as soybeans, wheat, corn, cotton, sorghum, tobacco and beef, according to the Ministry of Commerce in Beijing. They are among 106 U.S. products targeted ranging from automobiles to chemicals and aircraft.
Soybeans on the Chicago Board of Trade dropped as much as 4.2 percent, while wheat and corn futures also slid.
China is the world’s largest soybean importer and biggest buyer of the oilseed from the U.S. with trade worth about $14 billion last year. The Asian nation’s purchases have climbed to a record as expansion in large-scale livestock farming and a shortage of protein-rich feed grains boost soymeal consumption.
Earlier in the day, the U.S. president Donald Trump’s administration has proposed imposing 25 percent tariffs on about $50 billion worth of Chinese-made products. That was after Chinese tariffs on 128 American goods including wine and pork took effect on April 2.
“China’s response carries both economic and political weight as agricultural states are major supporting regions for Trump,” said Monica Tu, an analyst at Shanghai JC Intelligence Co. “The tariffs on U.S. imports including soybeans is China’s response that matches the scale of proposed U.S. tariffs.”
U.S. Ambassador Terry Branstad last month warned China against retaliatory measures aimed at imports of soybeans and said any efforts to curb the trade would harm the Asian nation’s regular citizens more than American growers.
China is the world’s biggest pork producer and consumer and its industry relies on soybean meal, a product of soybean crushing, to feed its pigs. Rising costs for hog farmers risks increasing the price of pork, a component of China’s consumer price index.
While the U.S. counts China as its biggest soybean market, the Asian country last year bought more of the oilseed from Brazil. Bloomberg reported in February that China was studying the impact of restricting soybean imports in retaliation for U.S. tariffs on washing machines and solar panels.
“This will obviously benefit Brazilian exporters,” said Warren Patterson, a commodity strategist at Dutch bank ING Groep (AS:INGA) NV. “They will be licking their lips right now.”
(Updates with details throughout.)