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Trade war complexities

Article cover photo
Wendong Zhang, assistant professor in the department of economics at Iowa State University, says the relationship between the United States and China is complex. (Photo: Bethany Baratta/Iowa Soybean Association)

By Bethany Baratta, ISA senior writer

The ongoing trade war between the United States and China is more than just a year-long power struggle among the world’s two largest economies, according to an Iowa State University (ISU) economist and China native.

“This is an incredibly complex issue,” said Wendong Zhang, an ISU Extension and Outreach economist at a Pro-Ag Outlook meeting in Altoona recently.

The trade war is also about China reducing its dependence on other countries — particularly the United States, said Zhang, who grew up in Shandong province in the Northeast region of the country.

He said ag is not China’s comparative advantage; China has to feed nearly 20% of the world’s population, with about 7% of China’s total farmland. The country relies on other countries for food and feed products.

“China doesn’t have the natural resources to be completely self-sufficient,” Zhang said. “But the country has chosen to be more self-sufficient in wheat, rice, corn and pork.”

China has lost more than 40% of its hog inventory — the size of the United States’ entire hog herd—due to the continued spread of African swine fever. Because of this, China has turned to other countries to fulfill its demand for pork and other proteins.

China has upped its pork imports from Canada; Beijing has doubled the number of Brazilian beef plants permitted to export to China. The country has also opened up its market to Argentinian cattle, according to Reuters.

China’s Feed Industry Association in October 2018 approved new feed standards for pigs and chickens, which reduces the requirement for protein contained therein.  The standard would reduce the country’s dependence on foreign suppliers and is a part of China’s overall goal of becoming more self-sufficient, Zhang said.

China’s Belt and Road Initiative, a program designed in 2013 to connect Asia with Africa and Europe via land and shipping networks, is speeding up the country’s efforts to shift away from the United States and toward countries within the network.

Though there have been sales of U.S. pork and soybeans to China since the trade war began, tariffs have increased the prices of U.S. goods going into China. This has hastened the country’s search for other suppliers, Zhang said.

“The longer this drags on, the more opportunity it creates for our competitors to ramp up production, improve infrastructure and increase their competitive advantage by putting more land into production,” said Grant Kimberley, senior director of market development for the Iowa Soybean Association.

Gauging farmer perceptions

Meanwhile, the trade war continues.

A recent survey of farmers in Iowa, Minnesota and Illinois took a closer look at farmers’ perceptions and views of the U.S.-China trade war.

The survey, designed by the Center for Agricultural and Rural Development (CARD) at ISU, where Zhang works, asked farmers with at least 250 operating acres of corn or soybeans to respond to an online questionnaire administered from February to April 2019 (before the market facilitation program/trade assistance payments were announced).

In the survey, 90% of farmers reported declines in their 2018 net farm income due to the trade disruption. However, more than half of the sample agreed that something good would come out of the trade disruption.

 “In general, farmer-respondents largely viewed the trade disruption as a short-term-pain/long-term-gain phenomenon,” Zhang said.  “Farmers are more optimistic about the prospect of future gains while being conscious regarding future economic losses resulting from China’s diversification efforts away from the United States.”

U.S. agriculture caught in crosshairs

Data shows U.S. soybean exports to China dropped 74% between 2017 and 2018 when the retaliatory efforts began. But soybeans weren’t the only casualty, Zhang said. Exports of tobacco, cotton, dairy, livestock and other grains were also down year over year.

Total U.S. agricultural exports to China were down $10 billion in 2018, information from CARD shows.

Iowa’s soybean industry lost $545 million as a result of the trade disruption in 2018 alone. CARD estimates that Iowa’s corn industry lost $333 million while Iowa’s pork industry took a $776 million hit that same year.

“Phase 1” hits snag

A Phase 1 agreement between the two countries was to be signed Nov. 17 in Chile at the Asia-Pacific Economic Cooperation meeting, but that fell through due to political unrest in Chile. A deal has not yet been reached, and recent talks have placed doubt about if a deal will even be reached by the end of the year.

“There’s still uncertainty about what the Phase 1 deal would include,” Zhang said. “If the deal isn’t signed, both countries have threatened to escalate the situation.”

A 15% tariff on Chinese products (largely consumer goods) is set to be enforced Dec. 15.

“We want a deal finalized sooner than later so we can get back to supplying our largest buyer of U.S. soybeans,” Kimberley said.

Contact Bethany Baratta at bbaratta@iasoybeans.com.

For media inquiries, please contact Katie James, ISA Public Relations Manager at kjames@iasoybeans.com or Aaron Putze, ISA Communications Director at aputze@iasoybeans.com

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