Even if the United States eventually reaches a trade agreement with China, the damage done from the ongoing trade war could take years to undo, according to an agricultural economist with Ohio State University.
It took a while to build a Chinese market for U.S. products, including American soybeans, and it will likely take considerable time to rebuild that market, says Ian Sheldon, a professor with OSU’s College of Food, Agricultural and Environmental Sciences (CFAES).
“Trade negotiations don’t get resolved in months; they take years. It’s not simple. These are the two largest economies in the world, essentially mud-wrestling. I think we’ve reached the point of no return,” says Sheldon, who serves as the Andersons Endowed Chair in Agricultural Marketing, Trade and Policy at CFAES.
China was the second-largest market for U.S. agricultural exports in 2017, and the country was Ohio’s most important soybean export market. But exports of American soybeans to China have crashed.
Since Sept. 1, 2018, American soybean exports to China have declined by 80% of the three-year annual average, says Ben Brown, manager of the Farm Management Program at CFAES.
“Soybeans have had an amazing run. But now we’re sending hardly any soybeans to China compared to what we used to,” Brown adds.
Tariff retaliation from China
The Chinese government announced on May 13 that it would increase tariffs to up to 25% on $60 billion in American goods sold in China. That was in retaliation for the U.S. administration’s decision, days earlier, to raise existing tariffs on $200 billion worth of Chinese products sold in the United States from 10% to 25%.
The U.S. tariffs mean Americans will have to pay more for products that come from China. The revenue from these tariffs, which are taxes, goes to the U.S. federal government. Similarly, the newly raised tariffs the Chinese government is scheduled to put in place June 1 mean its country’s residents will pay more for American products, a move intended to discourage them from buying those items.
Although President Donald Trump’s administration began ramping up tariffs in January 2018 on Chinese goods sold in the United States, American consumers have not felt much effect of that yet, says Sheldon, who — along with Brown — works for the CFAES Department of Agricultural, Environmental and Development Economics.
But this most recent round of tariff increases will hurt all U.S. consumers, because the tariffs on Chinese goods sold in the United States have more than doubled, he says. Also, on May 13, the Trump administration announced that tariffs on an additional $325 billion worth of imports are coming — this time on a much longer list of goods from China, including electronics, pesticides and purses.
“Farmers have borne the brunt of this trade war so far, but this recent round is going to hurt all American consumers,” Sheldon says.
With Americans paying more for Chinese goods, the thriving U.S. economy likely will see a dent in its growth, Sheldon says. And farmers can expect to see continued declines in the national average farm income, he says.
Part of the loss in Chinese markets for American soybeans has been made up by an increase in demand from the European Union. There’s still a void, however, Brown says.
The vast majority of American soybeans exported abroad are ground into meal and fed to livestock, including pigs. Pigs in China and other parts of Asia have been suffering from African swine fever, a fatal disease among pigs, which has cut China’s demand for soybeans and boosted the demand for pork from outside of China, Brown says.
Besides imposing a tariff on soybeans, the Chinese government also has increased tariffs on American corn and pork purchased in China.
The Trump administration has attempted to make it up to farmers. Government payments earlier this year helped compensate growers for a dip in commodity prices as a result of the tariffs. Another round of payments is expected.
That assistance, plus last year’s high yields on soybeans and corn, have helped insulate farmers a bit from the dip in prices on both crops, according to a study Brown and Sheldon released last fall.
But Brown says it would be best if farmers make planting decisions based on the market, not on the promise of federal payments for their crop.
“Do not try to guess what the aid package is going to entail. I’m not sure the administration even knows yet,” Brown says.
Planting intentions almost unchanged
Despite the trade war, Ohio farmers overall said they intended to plant only 1% fewer soybean acres than they did in 2018, according to a USDA survey taken in March.
Growers of corn and soybeans need to cut back on production to bring down the supply and increase the price on both crops, so they can at least break even, Brown says.
“As a country, we should be planting fewer corn and soybean acres,” he says.
Ideally, most growers sold off last year’s crop of soybeans before soybean prices took a serious dive in April, Brown says. The future price per bushel dropped from $9.29 on April 1 to $8.67 by the end of the month, he says.
As for the 2019 crop, the outlook on soybean prices is grim, Brown says. An abundance of soybeans on the world market is keeping prices for the crop low. A reduction in U.S. soybean supplies would help drive up the price; but for that to happen, fewer acres of soybeans should be planted, or there needs to be a reduction in soybean yield from drought, hail or flood.
The risk of African swine fever expansion in Asia or even outside of Asia likely means continued declines in world demand for soybean meal.
Large quantities of soybeans harvested in prior years are being kept in on-farm storage facilities. If the price for soybeans goes up a bit and a lot of those supplies get sold off, the entry of those soybeans into the market will, in turn, bring down soybean prices.