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- Based on the USDA report, a decline in just 1% in the U.S. soybean market share is equal to $500 million of lost sales.
- “The big case is agriculture, the Chinese will retaliate by going after this industry because agriculture is an American core constituency and China knows how to zero in on the core constituencies of Trump,”
Amidst recent U.S.-China trade tensions, experts believe that agricultural products, particularly soybeans and sorghum, are where the Chinese can hit the U.S. back the hardest. U.S. soybean distributors may have already lost their competitive edge to Brazil as the main exporter to China, a critically important buyer of the commodity.
China is the world’s largest importer of soybeans, while the U.S. has been the world's biggest producer—and exporter to China. But in January, the United States Department of Agriculture published a report showing that since September 2017, China has slowed imports of soybeans coming from the U.S. by 14%.
In 2017, U.S. soybeans only consisted of 34.4% of all China’s soybean imports, an all-time low since 2006. The shift in suppliers has led to losses in profits and excess grains in the U.S. agriculture industry.
And those costs could add up. The U.S. Commerce Budget Office estimates from 2018 to 2027, federal budget costs allocated to protect farmers from market losses will average about $7.7 billion dollars. Based on the USDA report, a decline in just 1% in the U.S. soybean market share is equal to $500 million of lost sales.
Hitting where it hurts
Trump has previously accused China of dumping solar panels and washing machines, which undercut American manufacturers and cost them sales. He imposed tariffs on these imports, fulfilling a key promise of his presidential campaign, and has recently signaled that steel and aluminum are his next target.
More on Forbes: Trump's Steel Tariffs Go Easy On China Despite Trade Deficit
It's unlikely China will sit by idly—and it appears they aren't. In early February, China officially launched an anti-dumping probe into U.S. sorghum grains, in what many perceived as a response to U.S. tariffs, according to Reuters News Agency.
Bill Perry, a former attorney with the Office of General Counsel, U.S. International Trade Commission and U.S. Department of Commerce, explained that the target wasn’t accidental.
“The Chinese government is sending out a word and that is if you bring your tariffs, we will bring ours,” Perry continued, saying that now, “U.S. agriculture is losing market share and this is a gut punch.”
The Chinese are always using less obvious tactics than outright tariffs. Harry Harding, a professor at the University of Virginia specializing in U.S.-China relations said, “The use of different standards, of more rigorous inspections on soybeans, are simply more subtle ways of which the trade war can be conducted.”
In early January, China tightened its standards for U.S. soybean imports due to unwanted weed seeds, which are toxic contaminants that degrade the overall quality, found in the U.S. shipments. As a result, U.S. soybeans that have more than a 1% impurity are held back from exports to China. This requirement does not apply to any other country, according to the state-run media China Daily.
“It is not simply imposing quotas,” said Harding. “There are all kinds of ways for this complicated process [to work].”
Brazil a better supplier?
As China has seemingly tried to distance itself from U.S. soybeans, it has redirected its attention to other agricultural exporters—namely Brazil. In late 2016, China officially invested US$15 billion in Brazil’s agriculture transportation industry; with China’s support, Brazil has taken a larger share in the global soybean market, surpassing the U.S. as the main exporter worldwide.
Many other elements have also contributed to Brazil’s rise; it is a country that has more space for arable land, ideal weather conditions, and has an economy more reliant on agricultural exports that is also able to produce quality grains.
China uses soybean meal to feed its mass livestock population, and higher quality protein levels from Brazil mean more nutritious and healthy food for pigs and cattle. As a result, the meal given to pigs cause them to become leaner, which is a demanding factor amongst consumers of pork.
Michael Cordonnier, President of Soybean & Corn Advisor Inc., a business that provides clients insight into soybean and corn market conditions, says, “The biggest reason why Brazilian soybeans are so competitive is because the protein content is higher than average protein levels in the U.S., and here’s why—temperatures are warmer during pod-filling period, similar to how Arkansas soybeans have higher protein content than other U.S. states.”
The 2017 average protein yield for U.S. soybeans was 34.1%, according to the U.S. Soybean Export Council, while Brazilian soybean protein yields can be 4% higher.
Cordonnier adds that, “Even a 1% in difference of soybean protein is a big difference because there is typically 45% in soybean meal altogether.”
Maria Helena Tachinardi, communications head of the Brazilian Association of Vegetable Oils Industries (ABIOVE) explained the relationship in more qualitative terms: “The prices of the Brazilian product are competitive, and both countries rely on a cooperative relationship. China lacks land and water to expand its agricultural production and uses the international market to meet its needs. Brazil is a reliable supplier.”
Also on Forbes: As Trump Turns Up Heat On China Over Trade And Intellectual Property, Will It Backfire?
