Hong Kong-based WH Group dominates U.S. pork exports to China through its American subsidiary, Smithfield. (Gerry Broome/AP)

As negotiators work to avoid the punitive tariffs China proposed against 128 U.S. products last week, commodity analysts have flagged a surprising wrinkle: One of the companies most harmed by the tariffs thus far is, in fact, Chinese.

Hong Kong-based WH Group dominates U.S. pork exports to China through its American subsidiary, Smithfield. The Chinese government has proposed a dramatic 25 percent tariff on U.S. pork products, 309,000 tons of which were shipped to China last year.

The proposed tariffs are part of an escalating standoff between the U.S. and China, sparked by President Trump’s March 22 announcement that he planned to impose tariffs on $60 billion of Chinese goods. Hours later, China proposed — but did not enact or provide a timeline for — retaliatory tariffs of its own, targeting products such as pork, wine and aluminum.

In an illustration of just how globalized the world food system has become, however — and how sensitive the markets are to potential disruptions — WH Group was among the first companies to feel the burn of the potential tariffs.

Shares in the company immediately dropped 10 percent and still have not recovered, even though analysts say the tariff would not immediately hurt their business because pork exports to China were already trailing off.

“I keep trying to tell customers: It’s not that meaningful,” said Dennis Smith, a commodities broker and analyst at Archer Financial Services. “In the bigger scheme of things, I don’t think the tariffs will impact profits at WH Group at all.”

In many ways, the anxiety around China's pork tariffs foreshadows the damage that a true trade war could reap. In addition to WH Group's shares, U.S. hog futures were down this week.

The drop comes despite the facts that China has given no indication of when or how the tariffs would be enacted and that the U.S. has already curtailed exports there. China has a growing pork glut of its own, which has recently made foreign pork far less competitive.

In the past five years, U.S. pork exports by volume to China, the third-largest consumer of U.S. pork, have fallen 11 percent, while exports to No. 2 Japan have jumped 11 percent, and exports to Mexico have edged up 1 percent.

On Monday, Reuters reported, Smithfield president Kenneth Sullivan told analysts that the markets were overreacting to the proposed Chinese tariffs, and that pork producers could easily pivot to new markets.

“We’ll find markets, we ship to more than 40 countries,” he said. “We may very well ship to China even with an increased tariff.”

Still, the proposed tariffs have raised the specter of more uncertainty and instability to come — for companies on both sides of the Pacific. WH Group is not the only Chinese company that could be penalized by its own country's proposed agricultural tariffs: Chinese investors have bought into Californian wineries, as well, which could face a tariff of 15 percent.

Any escalation in the current conflict could also have implications for Chinese firms. While Smith does not expect WH Group's U.S. division to suffer much from the Chinese pork tariffs, he said he believes the company's China-based pork operations would take a hit if China eventually extends its proposed tariffs to U.S. soybeans, a move feared by many in U.S. agriculture.

China imported $14.2 billion of American soybeans in 2016, largely to feed pigs and other livestock. Any disruption in that supply chain could throw the market off.

“This was just a token thing they did to put the U.S. on alert,” Smith said, of the initial pork tariffs. “The big deal is going to be if we continue to challenge China with these trade war situations.”

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