China's answer to trade war — Farmers told to plant soybeans

Posted Jun 20, 2018 by Karen Graham
U.S. President Donald Trump may have bitten off more than he can chew - especially if he thinks the U.S. can beat China in a tit-for-tat trade war. Beijing has previous trade war experience and a lot of tactics at its disposal.
Soybean exports to China to be hit with tariffs.
Soybean exports to China to be hit with tariffs.
H. Zell
Back in April, when the trade dispute was still simmering, Beijing was already making plans, just in case. The government instructed farmers in the country's northeastern breadbasket region to grow more soybeans, calling the order "a political priority."
On April 6, after the U.S. President Donald Trump threatened to slap tariffs on 100 billion U.S. dollars of imports from China, Gao Feng, a spokesperson with the Ministry of Commerce, at a press briefing in Beijing, said: "We are not taking any options off the table."
Gao also clarified that there have been no talks over economic and trade issues between Chinese and U.S. economic officials recently. "We have noticed that many U.S. officials have hinted that the two sides are in talks, but that is not the real case," he said.
So far, China's response to the Trump tariffs — now totaling more than $250 billion worth of Chinese goods - has been to threaten with retaliatory tariffs on soybeans and aircraft. But keep in mind that China has a lot fewer U.S. goods to impose tariffs on, $375 billion less, reports Politico.
Jurema Oliveira
China's playbook is full of ideas
China has weathered a number of previous trade spats and unlike the U.S. and other countries, all the Chinese government needs to do to negatively affect U.S. companies and in turn, the U.S. economy is to encourage its population of 1.4 billion people to give up their Big Macs or stop buying a particular vehicle.
“The reality is the Chinese can do quite a bit to hurt U.S. companies in the Chinese market,” an industry official said. “The truth is the Chinese are in a state of perpetual retaliation against many foreign firms. It’s just a question of how high they turn up the dial.”
Bill Reinsch, a senior adviser at the Center for Strategic and International Studies said the Chinese government could just encourage consumers to “stop shopping at KFC or stop buying American products, whatever they might be."
Varieties of soybeans (Glycine max).
Varieties of soybeans (Glycine max).
USDA Image Number K5267-7 - Scott Bauer
The matter of soybeans
In China and in the U.S., soybeans have become a "political football." Not only is China the world's largest consumer of soybeans - they are used for making soybean oil and pig feed - they are also America's biggest buyer of soybeans. And of course, China imposed tariffs against soybeans in response to U.S. tariffs.
Now with the latest threat of additional tariffs on $200 billion in Chinese goods - the U.S. has opened the door to a sharp escalation of the trade dispute.
In May, China's agriculture ministry said the country will reduce its soybean imports for the first time in 15 years. To make up for that loss, the government in late April ordered local authorities to set aside 1.6 million acres ( 647,497 hectares) of land to grow more soybeans.
According to the U.S. Department of Agriculture, China produced 14.2 million metric tons of soybeans last year and imported almost 100 million more to meet domestic demand, with a third of imports coming from the U.S. In a June 2018 report on oilseeds, the USDA says: For the week ending May 31, U.S. 2017/18 soybean export commitments (outstanding sales plus accumulated exports) to China totaled 28.7 million tons compared to 35.9 million a year ago. Total commitments to the world are 55.6 million tons, compared to 58.6 million for the same period last year.
A soybean harvest
A soybean harvest
United Soybean Board
"None of us wants a trade war," says Si Wei, an expert in the soy trade at China Agricultural University. "But if it happens, we need to think about what's important." He notes China can import from Australia, Canada, and Central Europe.
"Judging from the land and water resources we have, I don't think it's realistic to grow all the soybeans we need ourselves and completely replace U.S. imports. We use U.S. soybeans mostly for oil. We'd have to replace it with peanut and rapeseed oil," he says.
As for soybean prices, CNBC reports soybean futures for July delivery have dropped more than 7 percent to a low of $8.415 a bushel, their lowest since March 2009. They were trading near $8.64 a bushel as of 11 a.m. ET on Tuesday.
With the Trump tariffs expected to take effect on July 6, Chinese importers are focusing more than usual on Brazil, according to Pedro Dejneka, a partner at Chicago-based MD Commodities, according to Bloomberg.
"Brazil will probably export high volumes to China through October," Dejneka said in a telephone interview, "After that, Brazilian supplies will be low and China will be forced to return to the U.S. market."