Trump says we’re “gonna win” in the trade war with China- but what does that mean? US soybean sales have nearly collapsed, but not much has changed for a majority of citizens in the US and China as a result of the trade war. China’s starting to feel a little economic pain, but does it even matter? What could a “win” look like? Read on to learn more about the economic impacts of the trade dispute, potential solutions, and one Ag economist’s predicted outcomes.
Soybeans are Piling Up
Effects of the trade war with China are really starting to be felt in US soybeans- one of our biggest cash crops. A one-minute video on Yahoo View explains what’s happening. You can watch it here.
Up until recently, China has taken in over half of US soybean exports. New tariffs on US soybeans have driven sales down 94% since this time last year. According to the USDA, soybeans made up almost half of US crop acres last year, and was 30% of overall crop value.
This year, the beans are piling up with nowhere to go. The $12 billion farm aid package and efforts to expand markets in Canada and Mexico have not been able to make up for the lost Chinese business. China has started buying soybeans from Brazil instead. Many experts are concerned that the demand might remain there even after the trade war ends.
Grassley, Trump Intend to Keep the Pressure On
Despite the bleak prospects for soybeans, President Trump appears to have no intention of backing down. At the end of October President Trump spoke at the National FFA Convention. AgWeb reported the President’s comments on the trade war with China. In his speech, he said that he anticipates the trade war with China to end, but that it could take awhile.
“It will all work out between China and the United States, you know they’ve been doing very well against us for 25, 30 years. They’ve been doing beyond well, taking $500 billion dollars a year out of the United States. Would you say that’s a lot? That’s a lot of corn. That’s a lot of wheat. That’s a lot of soybeans, can’t do that. I said you can’t do that, so we’re in a trade dispute. I want to use that word because it’s a nice, softer word, but we’re gonna win. You know why, because we always win.”
Senator Charles Grassley of Iowa echoes the President. Ken Anderson of Brownfield Ag News noted Grassley’s recent comments to Ag reporters in a conference call. Grassley said,
“It’s critical we don’t let off the gas pedal.”
He believes that keeping the pressure on China is the path to resolution for our trade issues. Grassley acknowledges that the trade war is really hurting farmers, but that the US needs to take this stand in order to encourage China to stop stealing American ideas and innovation.
Grassley says the strategy is working. The Chinese economy is starting to suffer.
“There’s already evidence that they’re consulting with some of their counterparts in our government about getting negotiations going,” Grassley says, “and we have turned them down until they put something on the table—and they aren’t willing to put something on the table.”
The tariffs appear to be hurting the Chinese economy more than they’re hurting the US economy, but in the long run, that might not really matter.
Mike Wilson of Farm Futures wrote a fantastic article called, “Trade War Six Months Later: Who’s Winning?” Wilson notes that as grain piles up across the country, farmers are becoming more and more frustrated. We’re now six months into the trade war and the dispute doesn’t seem like it will be resolved soon. Wilson interviewed Iowa State University Ag Economist Wendong Zhang and shared his insights.
Zhang says that undoubtedly, the Chinese economy will suffer more than the US economy. The Chinese just depend more on exports than we do. Analysis from Iowa State University revealed that the latest $200 billion in tariffs on China has caused their economy to decline 1.5%. Chinese tariffs on US goods have only caused a small blip- a half of a percentage point.
Most Citizens Unaffected
In the US, the trade war hasn’t meant much for the big picture, but farmers- especially soybean farmers- are feeling the impact much more than other sectors. In the Iowa economy alone, the trade disruptions will cause a loss of $1-2 billion this year.
The trade war hasn’t really affected Chinese citizens much. When similar problems have occurred in the past, they have just adapted and gone without. They are prepared to shut down entire livestock sectors over political disputes. Just look back to 2010.
President Obama placed a tariff on Chinese tires. In response, China cut chicken paw imports, which essentially cut a $1 billion market down to nothing. And that’s where it still is today. They have been able to import chicken paws from other countries and make substitutions, like pig ears. According to Zhang,
“These trade disputes have made Chinese diversification an implicit objective, rather than an explicit strategy.”
On January 1, the US will hike Chinese tariffs up from 10% to 25%. Experts anticipate that will cause even more damage to the Chinese economy. The trade war won’t really impact food or food industries in China, but will be felt more in manufacturing and the industries that rely on exports.
China would like to avoid more export loss if they can. So one solution to the dispute might be for China to start buying more American goods. They want to appear like they have an open market, so this solution is possible. But what they’ll likely do is place tougher restrictions on US companies as compared to those of other countries.
Another possible solution is for China to start to open up the negotiations about fairer ways to protect intellectual property. Chinese companies are becoming more global. They can’t succeed in this without investing in the US, and that’s difficult to do without rules that apply to both countries. This could be an opportunity for the US to push for more explicit rules and timetables for the regulation of intellectual property.
Long Term Outcomes
Here’s what Wilson predicts will come out of this trade war:
1. Low cost production is economic gravity. If China loses markets in the U.S. for low-cost production, that production may begin to appear in other countries that want to serve U.S. markets. That is, if those countries and their industries want to accept the risk that the U.S. won’t slap tariffs on them, too.
2. Tariffs may seem simple, but they change global production, trade flow, related products, and more significant, they change expectations on where to get reliable supply in the future, both short-term and long-term.
3. The trade war tainted the U.S. image as a reliable trade partner. Regardless of the resolution, the Chinese will be more actively and aggressively diversify away from trade with the U.S. and expand domestic production wherever possible. This will incentivize the country to invest more in other partners like the EU. Japan, Former Soviet Union countries, Brazil, and Africa. China and Japan just signed several important agreements facilitating monetary exchanges and coordinated global investments.
Later this month President Trump might meet with President Xi at the G20 meeting in Argentina. China’s not showing much interest in negotiating at this point- but here’s hoping they put something on the table.
Read Ag Nook’s related article, “Will the US China Trade War Last Longer Than the Cold War?“.
Additionally, read how the U.S. China trade war has altered producer plans for 2019.