“Having fun”, are we?
Chinese retaliation to Trump’s tariffs come as no surprise to those who aren’t caught in the spell of “wouldn’t it be cool if our economy functioned the same way it did when it took Nellie Bly 74 days to circumnavigate the globe?”.
Reuters reports:
BEIJING/SINGAPORE, April 4 (Reuters) - China’s retaliation on Friday against new U.S. tariffs is poised to accelerate Beijing’s move towards alternative suppliers for agricultural goods including Brazil, a shift that began during the trade war of U.S. President Donald Trump’s first term.
Beijing unveiled a slew of countermeasures, including additional duties of 34% on all U.S. goods, which are on top of the 10-15% tariffs placed on roughly $21 billion worth of agricultural trade in early March.
“This is going to cost the U.S. a lot of export business,” Jack Scoville, vice president of the Chicago-based Price Futures Group, said. “We’re pissing off everybody. That’s the problem. Where are we going to turn if we’ve slapped everybody with tariffs?”
The most-active soybean contract on the Chicago Board of Trade (CBOT) settled down 34-1/2 cents to $9.77 a bushel, a 3.4% decline from Thursday and its lowest price on a continuous chart for 2025.
“It is like shutting down all U.S. agricultural imports. We are not sure if any imports will be viable with 34% duty,” said a Singapore-based trader at an international trading company which sells grains and oilseeds to China.
A European grains trader said the European Union, which has also vowed to retaliate, was also likely to put tariffs on U.S. soybeans.
China is the world’s top soybean consumer, and the U.S. is the next highest soybean producer behind Brazil. Anticipating this very outcome, China reportedly began stockpiling soybeans as a hedge against a more protectionist economic regime in the U.S., increasing imports in 2024 by 6.5% over the year prior. The American Soybean Association (ASA), too, knew there was trouble on the horizon well ahead of Liberation Day. Their chief economist Scott Gerlt was quoted in a statement, saying, “The U.S. agriculture sector is going through a significant economic downturn. This work shows that a trade war would easily compound the adverse conditions that are placing financial stress on farmers. Even when a trade war officially ends, the loss of market share can be permanent.”
A study performed by the ASA and the National Corn Growers Association (NCGA) quantified the bad news. According to the ASA’s statement:
Researchers modeled several scenarios that could play out in a new U.S.-China trade war and found a consistent outcome:
- Severe drop in U.S. exports to China. If China cancels its current waiver (from the 2020 Phase I agreement) and reverts to tariffs already on the books, U.S. soybean exports to China would, according to the study, fall 14 to 16 million metric tons annually, an average decline of 51.8% from baseline levels expected for those years. U.S. corn exports to China would fall about 2.2 million metric tons annually, an average decline of 84.3% from the baseline expectation.
- Brazil and Argentina would benefit. Brazil and Argentina would increase exports and thus gain valuable global market share. Chinese tariffs on soybeans and corn from the U.S.—but not Brazil—would provide incentive for Brazilian farmers to expand production area even more rapidly than baseline growth.
- No place to turn. While it is possible to divert exports to other nations, the study found there is insufficient demand from the rest of the world to offset the major loss of soybean exports to China to support the farmgate value.
The study found a new trade war would lead to a steep drop in soy and corn prices, resulting in a ripple impact across the U.S., particularly in rural economies where farmers live, purchase inputs, use farm and personal services, and purchase household goods.
(The “farmgate value” is the difference between market price and production cost. Essentially, it’s the breakeven point for a farmer before accounting for price differences when selling at auction. However, it doesn’t cover transportation or marketing costs, the latter including things like grading services and organic certification.)
Those “2020 Phase I agreement” tariff levels were a suspension of the 25% tariff rate that China placed on $20 billion of U.S. agricultural imports after the first Trump administration’s Section 301 report kicked off the 2018 trade war. Prior to this, China had levied only a 3% duty on soybeans and other agricultural products. If you recall, this blunder eventually resulted in a $28 billion bailout of farmers—more than double what the 2009 auto industry bailouts amounted to (remember the days when conservatives were stark raving mad about those?)—a bailout those very farmers said would be insufficient to remedy the pain caused. As Bloomberg reported at the time, “Producers in Iowa received $973 million in direct payments from the first round of trade aid covering a period in which Iowa State University estimated the trade war cost them $1.7 billion.”
Farmers made up a strong base of support for Trump’s three electoral bids. I can’t drive 20 miles of state highways in Iowa without seeing a ridiculous painted hay bale lauding him as if he didn’t slap them all across the face with tariffs not even a decade ago. Quite literally a “me sowing, me reaping” situation.
Now we’re looking at 34% tariffs on, well, everything. I won’t hold my breath while waiting to see bailouts for every other industry in need of one because of this nonsense.