The U.S. and China remain deadlocked in a major trade dispute. While many sectors have been impacted, the U.S. agricultural sector has paid a heavy price in the dispute. The first major impact on U.S. agriculture came in July 2018 when China imposed a 25% retaliatory tariff on many U.S. agricultural products. This post reviews the impacts and stakes of the Trade War.
U.S. Ag Impacts
China is a major export destination for U.S. agricultural products. In 2017 it ranked just behind Canada as the second most valuable U.S. ag export destination accounting for $19.6 billion of exports. Among the most important exports in 2017 were soybeans ($12 billion), cotton ($971 million), grain sorghum ($835 million), dairy products ($579 million), red meat and products ($561 million), wheat ($378 million), cherries ($122 million), almonds ($101 million), and vegetables ($154 million).
The result of the Chinese retaliatory tariffs has been a steep drop (-53% from 2017 levels) in the value of U.S. ag exports to China (figure 1) (You can read more here.). Given the inelastic demand of agricultural commodities, large declines in prices for most agricultural products have occurred.
|Figure 1. Value of U.S. Ag Exports to China, 2000-2018.|
Soybeans are by far the most impacted U.S. commodity. The experience for soybeans has been particularly painful for U.S. soybean producers. The Chinese soybean market has been a source of dramatic growth over the last 20 years. The market grew from 192 million bushels in 2000 to its peak of 1.3 billion bushels in 2016. In 2016 Chinese exports accounted for 62% of all U.S. soybean exports. In 2018, export levels fell back to levels last seen in 2003.
|Figure 2. Annual U.S. Soybean Exports, 2000-2019.|
The result in the loss of this important export market has been a collapse in prices as supply chains were forced to readjust to new market fundamentals. These adjustments include reallocating acreage to other crops and adjusting export destinations. The collapse in prices comes at a time when the U.S. farm economy was already struggling to adjust to oversupply problems and weak farm economic conditions.
As a result, the U.S. has been forced to provide ad hoc tariff aid payments in an effort to stabilize U.S. farm economic conditions. These Market Facilitation Program (MFP) payments have been significant. USDA has earmarked $23 billion of trade adjustment payments ($8.59 billion in round 1 and $14.5 billion in round 2). Without a trade war resolution, it is likely that additional payments will be required to stabilize the farm economy.
The Chinese Impacts
The recent Chinese/US trade dispute flies in the face of a major trend toward a more globally intertwined agricultural production system. The amount of agricultural trade has steadily increased for some time. Figure 3 shows the share of global harvested acres that are tied to trade for 13 primary crops. This total has steadily increased from the 1960s to the mid-1980s and then again from the mid-1990s to today. For the 2017/2018 crop year, nearly 20% of globally harvested acres of these crops were exported.
|Figure 3. Share of Global Harvested Acres of 13 Primary Crops Tied to Trade, 1960-2018.|