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How soybeans became China’s most powerful weapon in Trump’s trade war

File photo of Chinese President Xi Jinping. Photograph:( Agencia EFE )

Ohio, USA May 31, 2019, 02.22 PM (IST) Written By: The Conversation

By Ian Sheldon

Soybeans may not seem all that useful in a war. Nonetheless, they’ve become China’s most important weapon in its ever-worsening trade conflict with the US.

China, the world’s biggest buyer of the crop, has reportedly stopped purchasing any American soybeans in retaliation for the Trump administration raising tariffs on $250 billion of Chinese goods. This is very bad news for US farmers.

While China’s targeting of soybeans may have come as something of a surprise to most Americans, to a professor of agricultural economics who studies international commodity markets for a living, this was not at all unexpected.

Even before the conclusion of the 2016 presidential race, trade analysts were already weighing the possibility that China might impose an embargo on US soybean imports based on protectionist rhetoric from both candidates.

As a result, with the trade war in full swing, American soybean farmers are now among its biggest losers.

Here are a few figures that show why.

Soybeans, by the numbers

Soybeans are a crucial part of the global food chain, particularly as a source of protein in the production of hogs and poultry.

The importance of China as a market for soybeans has been driven by an explosion in demand for meat as consumers switch from a diet dominated by rice to one where pork, poultry and beef play an important part. Chinese production of meat from those three animals surged 250 per cent from 1986 to 2012 and is projected to increase another 30 per cent by the end of the current decade. However, China is unable to produce enough animal feed itself, hence the need to import soybeans from the United States and Brazil.

In 2017, the US accounted for $21.4 billion worth of global soybean exports, the second largest after its main competitor Brazil, which exported $25.7 billion.

Back in 2017, that was good news for American farmers, when US exports made up about a third of Chinese purchases, or $13.9 billion. That made soybeans the United States’ second-most valuable export to China after airplanes.

But US exports to China have fallen dramatically since China slapped a 25 per cent tariff on Americans soybeans last April as part of its initial response to President Donald Trump’s trade war.

In the current farm marketing year, which began September 1, US farmers have exported just 5.9 million metric tons of soybeans to China, compared with an average of 29 million at the same point during the previous three years – or about 80 per cent less.

That’s why the tariffs have tremendous potential to hurt farmers in my state of Ohio, where soybeans were the number one agricultural export in 2017 at $1.3 billion. China is the state’s largest export market.

And yet nationally, Ohio is just the seventh-largest exporter of soybeans, after Illinois, Iowa, Minnesota, Nebraska, Indiana and Missouri, all of which are suffering from the tariffs.

Not only do farmers stand to lose out by giving up market share to Brazilian farmers, but soybean prices at the port of New Orleans have fallen as well and are currently $9.35 a bushel compared with $10.82 per b\ushel a year ago. This has hurt incomes and created a double whammy for Midwest farms.

(Ian Sheldon is Chair in Agricultural Marketing, Trade and Policy, The Ohio State University)

(This article was originally published on The Conversation. Read the original article)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL.) 

Story highlights

With the trade war in full swing, American soybean farmers are now among its biggest losers.