President Trump has kicked off a trade war with China. There’s no disputing that.
That said trade war with China has implications for American businesses who sell a lot of stuff to China. Notably, for our part of the world, soybean farmers.
It’s also true that hysteria over the soybean markets serves the political ends of Democrats – in North Dakota people like Senator Heidi Heitkamp and U.S. House candidate Mac Schneider – as evidenced by their political allies with groups like the North Dakota Farmer’s Union fanning the flames of discord.
How concerned should we be? On the political side Republicans are clearly concerned. Perception, in politics, is reality. It doesn’t really matter how badly the Trump administration’s trade policies might or might not be hurting farmers. If voters accept a perception of harm as true the ramifications at the ballot box will be very, very real.
That the powerful House Ways and Means Committee has scheduled a hearing on the impact of trade tariff’s on American agriculture is evidence in support of the political risks for Republicans.
But what about the reality of the situation outside of the political bubble? Perception can be reality in the commodity markets as well, but I think there’s something everyone is missing.
Ag Week writer Mikkel Pates suggests that, during this trade war, “China will simply get the rest [of their soybeans] from Brazil or Argentina.”
“Farmers in Trump country will become residual suppliers to China,” he adds.
Ok, but you can’t talk about the ramifications of China shifting their soybean buys to other country without following that thread all the way through.
If China buys up more of Brazil’s soybean output, where do the people who were buying that supply go?
Maybe to the American market? That seems to be the case according to this CNBC article from May:
Chinese cancellations of U.S. soybean orders for the week ended April 26 resulted in a decline of 133,700 metric tons in net sales to China, USDA Foreign Agricultural Service data showed Thursday.
But 66,000 metric tons of those soybeans were sent to Vietnam instead, the data showed.
Meanwhile, the U.S. sold 82,700 metric tons of soybeans in new sales to Mexico, 68,800 to Taiwan, 60,000 to Argentina and 52,600 to the Netherlands. Although Argentina is the third-largest exporter of soybeans, a severe drought has reduced production by 7 million tons to 40 million, according to USDA estimates.
“That just goes to show we’re not dependent on China for soybean exports,” said Michael Stumo, head of Coalition for a Prosperous America, a nonprofit representing the interests of those in manufacturing, agriculture and labor unions.
There is no question that the trade war with China is hurting the soybean markets. Prices are down, no doubt due to the political uncertainty around this situation, and that’s going to hurt. It’s also probably not a permanent situation as the markets stabilize and adjust to a new normal.
There is widespread, bipartisan agreement that the U.S. needed to get tough with China on trade. I’m not sure how that was going to happen without creating at least some short-term turbulence in the markets.
Democrats want voters to buy into a very shallow analysis of this situation because that’s political advantageous for them.