© 2018 by Robert Person.  The views expressed on this website are my own and do not represent the official policy of the U.S. Army, Department of Defense, or U.S. Government.

alexschung
Feb 10, 2019

China says it will buy more soybeans, but American farmers see a bleak future

Meeting with President Trump on Jan 31, China's vice-premier Liu He pledged to purchase another 5 million metric tons of soybeans. However, U.S. soybean farmers remain pessimistic about the outlook of the soybean industry as the trade war between the United States and China has caused a sharp decline in prices and concerns that the soybean industry will be unable to recover to pre-trade war levels. Since the trade war began, China has redirected its soybean trade to South America. Argentina's production of soybeans increased from 37.8 to 55.5 million metric tons, and the majority of Brazil's 80 million tons of soybean exports are purchased by Chinese consumers. In 2017, the U.S. government spent USD $7.3 billion on aid payments to its soybean industry, but the American Soybean Association's website shows that the industry is in need of further aid payments, regardless of the increase in Chinese purchases (https://soygrowers.com/soybean-growers-encouraged-china-sales-need-second-aid-payment/). The outlook is rather bleak for U.S. soybean farmers, who remain pessimistic as to the ability of soybean prices to recover and their dependence on China as a primary customer. They seek alternative markets for soybeans to reduce this dependence on China.

(for reference - price of soybeans in USD, 2015-2019)


IPE theory lays out two models to explain the societal impacts of trade: the factor model and the sector model. The factor model states that the primary conflict within a free-trading society will be between different factors of production. As predicted by the Heckscher-Olin theorem, a free-trading society can export its abundant factor-intensive products and import its scarce factor-intensive products. Factors of production from the importing industries will shift and reorient themselves towards the exporting industries, and the abundant factor-owners will benefit from free trade.

In reality, factors of production are not as mobile as predicted in the factor model, and the sector model explains that the societal conflicts are between different sectors. Exporting sectors will benefit from freer trade, and import-competing sectors will suffer from free trade. The opposite also holds true - exporting sectors will suffer from higher international tariffs (soybean farmers), and import-competing sectors will benefit. In the case of the U.S.-China trade war, the soybean industry as a whole has suffered and there is now much more of an impetus for political lobbying and aid requests from those who have suffered from China's retaliatory tariffs on U.S. goods.

https://beta.scmp.com/news/china/diplomacy/article/2184825/china-says-it-will-buy-more-soybeans-american-farmers-see-bleak

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