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Update: Who Is Winning The U.S.-China Trade War?

trade war

Update: Who Is Winning The U.S.-China Trade War?

In 2018, U.S. President Donald J. Trump initiated a trade war with China. The trade war, which has never officially ended, continues to this day. Neither side appears to be winning and many bystander countries are benefiting as a result of this international dispute. 

In some cases, these countries are seeing a number of positive impacts, including an increase in trade exports. This article will take a look at where the U.S.-China trade war currently stands and what outcomes have occurred as a result.


 

An end to globalization?

One of the main concerns springing from the U.S.-China trade war was that it would damage the international economy and bring an end to globalization. Specifically, because the United States and China are the two largest global economies. However, even a global pandemic could not totally destroy the integrated economies of the world. 

Recent research demonstrates that U.S. tariffs on Chinese goods resulted in higher import prices in the U.S. and the Chinese retaliatory measures ended up harming Chinese importers. In the end, two-way trade between the U.S. and China dried up. However, contrary to speculators’ fears, globalization has not disappeared and many bystander countries benefited from the trade war through increased exports.

Explaining Bystander Country Growth

It seems unsurprising that global participants would fill the void after China was axed from the U.S. trade pipeline. Countries like Mexico, Malaysia, and Vietnam benefited the most. However, more surprisingly is that global trade, in products affected by the trade war, increased 3% relative to products not impacted by tariffs. So, not only did imports from other countries increase, but overall global trade increased.

One possible theory is that countries saw the trade war as a chance to expand their global market presence. China, which utilized a zero-COVID policy over the past few years, saw lags in its trade activity as a result. These gaps in global trade gave countries the opportunity to invest in additional trade opportunities or the chance to mobilize larger portions of their workforce. These changes enabled countries to increase exports without increasing prices.

Another theory explaining the growth is how third countries were able to export more to the U.S. and China. This change shrank their per-unit costs of production and economies of scale thus allowing them to offer more products for lower prices. Countries, where global export prices are declining, are also those where the largest increases in global exports are occurring.

Country Trade Growth Factors

One might wonder, what more could be done to take advantage of these types of trade wars in the future? Some countries increased exports overall. Others reallocated their trade by shifting their exports from other countries to the U.S. Finally, in some cases countries saw an overall decrease because they sold less overall. Two primary factors emerged to explain these patterns.

Deep Trade Agreements

Deep trade agreements (agreements that go beyond just tariff regulation, but include other behind-the-border protections) were significant. In a “deep” trade agreement fundamental economic integration provisions, like tariff preferences, export taxes, investments, and intellectual property rights are combined with other provisions. The first layer of these provisions usually supports economic integration like rules of origin and anti-dumping and countervailing duties. Then, other provisions that promote social welfare, like environmental laws or labor market regulations are added in, on top. 

Trade agreements beyond just tariff preferences and other fundamental provisions help minimize fixed costs of expanding into foreign markets. Countries with these types of agreements had the necessary security to expand trade as the U.S. and China vie for economic supremacy.

Accumulated Foreign Direct Investment

Deep trade agreements weren’t the only important factor though. Accumulated foreign direct investment was also significant. Foreign direct investment is different from other types of investment because FDI occurs when an investor based in a home country acquires an asset in a foreign nation with the intent to manage that asset. Many areas that are undergoing increased social, political, and economic connections to global markets also see increased direct foreign investment.

Foreign direct investment is significant because it helps manage the utilization of scarce global resources. Poor countries often lack the necessary capital to build the necessary economic infrastructure. By receiving these foreign funds, which are managed from abroad, countries can better develop their economies.

Supply chains interacted like dominoes

Analysts at the Peterson Institute for International Economics predicted as far back as 2016 that U.S. tariffs would cause widespread production shifts in a “daisy chain.” In essence, when U.S. tariffs hit China, companies moved production to a third country. This move then caused other activities in third countries to be shuffled. 

Analysts have noted that the complexity of modern supply chains makes predicting these outcomes difficult to predict. However, countries that were more integrated into the global economy seemed more likely to land firm relocations.

No Reshoring of U.S. Jobs

Unfortunately, relocations did not occur in the United States. Supporters of the trade war often hoped that it would result in the reshoring of U.S. jobs. Others were supportive because it demonstrated a way to hold China accountable for its deleterious authoritarianism. 

In any case, the trade war did not result in massive amounts of jobs returning to the United States as many had hoped – although admittedly this is something that’s difficult to measure. Overall, third countries were the main winners as they replaced Chinese imports with their own.

Bystander countries benefited the most, especially those with a high degree of trade integration. A good business plan can help a business navigate trying times. In the same sense, countries that adopted a strategy for global trade shakeups came out on top. Despite worries of an end to globalization, the trade war seems to have actually diversified trade and spread opportunities to other countries. In reality, the trade war has helped push us towards a world where trade is not monopolized by the U.S. and China.

Conclusion

Initially, we asked who was winning the U.S.-China trade war? The answer is clear: third countries with deep connections to international partners. This means countries that were able to take advantage of supply-chain shakeups and countries that already had existing trade agreements and large amounts of foreign investment. 

For the United States, and China, it appears that the trade war did not result in any major gains. Some analysts believe that it does more harm than good. The U.S. did not see any increased reshoring of jobs and economic activities. Really, the U.S. replaced Chinese imports with imports from alternative countries

administration

The Top Five International Trade Issues Under the New U.S. Administration

After a tumultuous stretch of international trade wars and a global economic crisis courtesy of the pandemic, the U.S. has a new president directing trade policy. What can business leaders expect from a Biden presidency as far as strategies, relations with major trading partners, and the role of the U.S. in global trade for the next few years? Early indications are that the U.S. – China relationship will remain tense, but the Biden team approach in other areas will differ greatly from the previous administration. Global partners can expect a change in tone from Washington, and there are five issues which will stand out as major differences under Biden’s leadership:

Number Five: The U.S. will reengage with the World Trade Organization (WTO), which should lead to a substantial reduction in unilateral ‘trade wars’ and tit-for-tat tariff exchanges. Under Trump, the WTO was marginalized and hamstrung by U.S. policies, as the appellate body did not have enough judges to take any action on trade disputes. Under Biden, the U.S. will be an active participant in the WTO and will use the organization to bring pressure against China and other nations on issues such as illegal support to state-owned enterprises. There is still an urgent need to reform the WTO, but the new administration seems poised to jump in and push for improvements.

Number Four: Russia is in the crosshairs. The on-again, off-again political relations between the U.S. and Russia should switch firmly to ‘off’ for the foreseeable future, as Biden’s foreign policy team has already indicated grave concerns over Russia’s meddling in Belarus as well as its treatment of protestors and dissidents such as Alexei Navalny in Russia. Biden ordered an extensive intelligence review of Russia’s actions over the last few years and will likely use the results of that report to tighten sanctions on Putin’s inner circle through the Magnitsky Act or dramatically limit trade and transactions with Russian state-owned enterprises, such as the Trump administration did with Huawei and other Chinese companies.

Number Three: The UK faces an uphill climb on their eventual U.S. trade deal. PM Boris Johnson lost an ally when President Trump left office, and the relationship with President Biden will be cordial but arm’s length. Johnson is in a tough spot, as he would like to secure a trade deal quickly to bolster his post-Brexit polling numbers, but Biden’s team is focused on the domestic agenda and probably will not see a need to negotiate this before 2022. The only way to move this deal to the front burner is to offer the U.S. one or more of the concessions it has long desired – increased access to the NHS for the U.S. pharmaceutical industry, lowered trade barriers for food imports, or improved entry into the services industry in the UK.  None of these would be popular for British voters, but Biden’s trade representative will be well-positioned to insist on key concessions.

Number Two: Biden’s team has committed early in the presidency to implement a “worker-centered trade policy” and that will color all of the legislation and trade deals that his administration will touch.  The intent of the policy is to ensure that future trade deals (including any potential participation in the CPTPP) do not harm American workers by giving the U.S. market access to foreign goods that were produced by underpaid and under-protected workers.  The flip side of this approach should be easier U.S. market entry from countries with decent labor (and environmental) standards, as the administration formulates a way to preference the ‘right’ type of imports.

The number one issue that will differ under the Biden administration is a desire to improve ties and trade opportunities with reliable partners. The tension with China will remain and potentially even deepen, but the Biden administration – stocked with committed ‘globalists’ – is going proactively tie other partners (especially fellow democracies) closer to the U.S. through increased trade and investment opportunities. Outside of North America, this will benefit Japan, South Korea, Australia, New Zealand, Israel and the European Union most of all. Rather than adjustments to existing trade deals (some of which, like the USJTA and USMCA, were just recently completed), the Biden administration will look to use bilateral investment deals to promote greater trade ties with trusted partners, especially in areas such as renewable energy and defense technology.

On the outside looking in will be Saudi Arabia, Turkey, Russia and other countries that will find in the Biden administration a trade team that is willing to substantively weigh human rights abuses and the dangers of populist leaders when assessing trade deals, money-laundering regulations, sanctions and access to the U.S. market and technology. While this shift in approach and tone will not immediately push international trade traffic into new patterns, it will lay the groundwork for a transition to more benign trade policies and less regulation for businesses working with preferred partners.  The foundations of global trade will shift just enough to push some companies, already weakened and weary by the pandemic recession, into a difficult scramble to quickly move operations and find new partners.

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Kirk Samson is the owner of Samson Atlantic LLC, a Chicago-based international business consulting company which offers market entry research, political risk assessment, and international negotiations assistance.  Mr. Samson is a former U.S. diplomat and international law advisor.

RCEP

What the Regional Comprehensive Economic Partnership Agreement Means for U.S. and Foreign Companies

The Regional Comprehensive Economic Partnership (RCEP) Agreement is a mega free trade agreement signed on November 15, 2020 by 15 Asia-Pacific countries, including Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. The 15 countries represent nearly 30 percent of the world’s GDP and 2.2 billion people. Meanwhile, RCEP brings together China, Japan, and South Korea for the first time under a single free trade agreement. The Peterson Institute for International Economics estimates that by 2030, the RCEP could add $186 billion to global national income annually. India originally planned to join RCEP but later pulled out in November 2019.

Summary of RCEP

The RCEP Agreement consists of 20 chapters covering a wide range of areas including trade in goods, rules of origin, customs procedures and trade facilitation, sanitary and phytosanitary measures, intellectual property rights, trade in services, E-commerce, and government procurement. Although the RCEP Agreement does not establish unified standards on labor and environmental protection, many scholars and practitioners believe that RCEP will effectively remove some common trade barriers in Asian countries.

Rules of Origin. Under the RCEP Agreement, the rules of origin will be unified for all member states, which means that companies only need to acquire one certificate of origin for trading in all member states. Surprisingly, only 40 percent of RCEP regional value of content is required for goods to meet the rules of origin requirement.

Trade in Goods. The chapter addressing trade in goods consists of key clauses that implement the member states’ goods-related commitments, including granting national treatment to other member states; reduction or elimination of customs duties, and duty-free temporary admission of goods. For example, tariffs likely will be eliminated on 86 percent of industrial goods exported from Japan to China. Overall, under RCEP the total number of zero-tariff products in trade in goods exceeds 90 percent of total products.

Investment. The chapter addressing investment includes several investment protection standards commonly used in other trade and investment treaties such as most-favored-nation treatment, fair and equitable treatment, and just compensation. Additionally, RCEP stipulates the rules for expropriation and covers both direct and indirect expropriation. In order to rise to the level of indirect expropriation, several factors must be exercised including the economic impact of government actions; whether the government actions violate its prior binding written commitments to the investor; and the nature of the government actions.

E-Commerce. Considering the digitalization of the trade and commerce among the member states, the chapter focused on e-commerce aims to promote e-commerce among the member states and use of e-commerce globally. This chapter requires all member states to adopt legal mechanisms to create a conducive environment for e-commerce transactions and development, including protection of personal data and information, and cross-border information transfer. In addition, all member states are required to maintain the current practice of not imposing duties for electronic transmissions.

What U.S. and Foreign Companies Can Expect

Lenient Rules of Origin. For U.S. and foreign companies doing business and operating in ASEAN, China, and other Asia Pacific region, RCEP probably offers the most lenient rules of origin compared to other major free trade agreements. As discussed above, the basic value of the content rule of 40 percent RCEP content is surprisingly low and is favorable to many U.S. and foreign companies. For example, a U.S. company may manufacture a product with 60 percent U.S. content and then export the product to Indonesia where the remaining 40 percent of content (from any other RCEP member) is added. Once the U.S. company establishes the 40 percent RCEP content, it can label the products as “Made in Indonesia,” and export the products to any RCEP member state, including China, and enjoy low or zero tariffs.

Supply Chain and End Market. In response to the worsening U.S. – China trade relationship, many U.S. companies have started to optimize and diversify their global supply chains throughout Southeast Asia. Because RCEP lowers tariffs, reduces non-tariff trade barriers, and improves market access for goods and services in the region, investment in Southeast Asia becomes even more attractive and economically feasible for those companies looking to sell their products or services in the region. For example, for many U.S. companies, buying Chinese components and/or selling products in China can be an expensive proposition due to the many tariffs and non-tariff barriers that exist between the countries. However, U.S. companies now have an opportunity to avoid these burdens by importing parts from China and completing the manufacturing process in an RCEP member state, and then selling the final products to China’s huge market while taking advantage of the benefits of RCEP.

How Member States and U.S. Companies May Benefit

RCEP will benefit its member states by reducing trade and investment barriers and increasing the economic integration among the members. U.S. companies may also benefit by reconfiguring their global supply chains to include more trade and investment in the region which will allow these companies to avoid many of the currently high tariffs and regulatory burdens that they currently experience.

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Frank Xue and John Scannapieco are attorneys at Baker Donelson and members of the firm’s Global Business Team.

corruption

Corruption is a Costly “Hidden” Tariff

Hidden costs

Tariffs, quotas and sanctions are all overt hurdles to free trade that increase the costs of commercial exchanges or even prohibit them. But not all barriers to trade are written down in law or even apparent on the surface. Some lurk in the form of money changing hands under the table.

The Organisation for Economic Co-operation and Development (OECD) in a recent report identified corruption as one of the most costly non-tariff barriers in global trade, particularly for low and low-middle income countries. Acting as a “hidden tariff,” a lack of integrity in trade can be just as damaging to trade relations as any legalized restriction.

Corruption wreaks direct costs such as skimmed revenue and outright theft, but can also create health and safety risks as officials look the other way on dangerous cargo. At the firm level, the OECD estimates informal payments and corruption add a “tax” of anywhere from five to ten percent of the value of company sales in markets where corruption is normalized. Combined, these effects will damage countries’ economic welfare over the long run.

corruption adds tax

Trading in bribes

Burdensome regulations and opaque bureaucracy often go hand in hand. The more complex regulation is, the greater the cost of compliance, and the more attractive bribery becomes as an end run around the bureaucracy and the easier corruption is to hide. When governments maintain quotas and other quantitative restrictions, administrative procedures to allocate them also create opportunities for mischief.

Corruption in trade is damaging to business in a number of ways. The added costs consume resources that could be spent bringing down prices or improving quality. Corruption also distorts private sector competition – firms that do best are the ones that can best work the corrupt system, not necessarily the ones that provide the most value. Companies unwilling or unable to engage in corruption are limited or barred from providing their goods and services in that economy.

High levels of corruption also make international firms unwilling to invest due to the added risks. Local citizens, particularly those in emerging economies, feel this damage through a lack of access to affordable, quality products, reduced job opportunities, and insufficient allocation of government resources to public services due to missing tax revenue.

World Bank lost revenue at customs borders

Greasing wheels at the borders

The World Bank estimates that corruption generates losses of about $2 billion each year in lost revenue collection at customs borders.

Complicated rules, a lack of oversight, and the discretionary power characteristic of many customs administrations provide opportunities for corruption at all levels. Whether it takes the form of slipping an agent money at a customs check to let goods through or fudge some paperwork, or large-scale fraud involving officials all the way to the top, corruption can be widespread and corrosive. As former Secretary General of the World Customs Organization, J. W. Shaver, once put it: “There are few public agencies in which the classic pre-conditions for institutional corruption are so conveniently presented as in a customs administration.

In one high profile example, a 2015 investigation in Guatemala uncovered systemic corruption in their customs authority. In return for bribes, importers were allowed to under-report shipments to avoid import taxes on a large scale, costing the country millions. Mass protests with citizens calling for transparency and accountability led to the vice president’s resignation.

Sometimes corruption is less bold but equally systemic. Superstore giant Walmart has recently come under fire for looking past bribery within its supply chain. In 2019, the U.S. Securities and Exchange Commission (SEC) investigated Walmart under the Foreign Corrupt Practices Act for deliberately ignoring corruption risks and red flags in its dealings in India, China, Brazil and Mexico. In India, many payments were less than $200, but together totaled millions. Walmart is paying $238 million to settle the investigation.

WCO quote about customs

Dangers of turning a blind eye

Beyond lost revenue, when customs officials turn a blind eye to nefarious shippers, human lives are put at risk. In 2015, chemicals that were falsely declared in China’s Tianjin port exploded, resulting in over 150 deaths. Investigations found that bribes were paid to sidestep safety regulations. The incident worsened when firefighters used water on the fire, unaware (due to deliberate mislabelling) that the type of chemicals involved would detonate upon reaction with the water.

Solutions that could pay off

There is an argument that, in some cases, so-called “informal payments” may actually facilitate trade in situations where government regulatory hurdles and inefficiencies are hard to overcome. However, greasing the wheels in this manner fails to remove systemic incentives to engage in corrupt behavior.

The trouble is, there is no one-size-fits-all solution to the problem of corruption in international trade. The most pressing risks must be targeted to ensure safety and integrity while avoiding over-burdensome rules and red tape that hamper trade and economic growth.

The OECD suggests a mix of approaches. Broad, high-level government support is needed to tackle corruption within customs administrations and border control. The penalties for bribery offenses must be stiffened and applied. The private sector must be engaged to monitor practices in their global supply chains. And, the OECD suggests writing transparency and anti-corruption provisions into trade agreements.

Beyond business and borders

Corruption is a quantifiable hidden tariff on individual commercial transactions. What’s harder is to measure the extent to which corruption, perpetrated in drips over the course of years, damages broader economic prosperity.

If open markets and greater trade benefit ordinary people, as we know they do, then tackling corruption to promote legitimate trade would have positive impacts on the well-being of millions around the world.

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Alice Calder

Alice Calder received her MA in Applied Economics at GMU. Originally from the UK, where she received her BA in Philosophy and Political Economy from the University of Exeter, living and working internationally sparked her interest in trade issues as well as the intersection of economics and culture.

This article originally appeared on TradeVistas.org. Republished with permission.

soybean

Soybean Prices are a Proxy for How the Trade War is Going

Soybeans are in your cereal, candles, crayons and car seats

Soybeans have more far uses than most of us realize. After harvesting, soybeans are dehulled and rolled into flakes as its oil is extracted. Soybean oil has become an ingredient ubiquitous in dressings, cooking oils and many foods, but is also sold for biodiesel production and other industrial uses.

Soy flours feature prominently in commercial baking. Soy hulls are part of fiber bran cereals, breads and snacks. Soybeans are even part of building materials, replacing wood in furniture, flooring and countertops. They are in carpets, auto upholstery and paints. Soybean candles are popular because they burn longer with less smoke. Soy crayons are non-toxic for children. And – because soybeans are high in protein – they are a major ingredient in livestock feed, which provides much of the impetus for globally traded soybeans.

Bean counting

Given this panoply of applications, it should be no surprise that global demand for soybeans is growing, but it’s mostly animal mouths we are feeding. Demand for soybean meal for livestock feed drives two-thirds of the export value of traded soybeans.

According to the Agricultural Market Information System, three countries produce 80 percent of the world’s soybeans to fill this demand: the United States, Brazil and Argentina.

At 123.7 million metric tons produced in 2018, U.S. farmers accounted for 34 percent of world production. Brazil’s farmers yielded 117 million metric tons, accounting for 32 percent of world production, but Brazil exported larger volumes than the United States.

Rounding out the top three, Argentina accounts for 15 percent of world production but exported just 6.3 million metric tons in 2018. China is fourth, producing 15.9 million metric tons in 2018 – just four percent of world production.

America’s second largest crop

Grown on more than 303,000 farms across the United States, soybeans are the second largest cash crop for American farmers. Conventional soybeans are grown in 45 U.S. states while high oleic soybeans are grown in 10 states. Though output varies each year, at 4.54 billion bushels in 2018, U.S. growers are so productive they can now yield twice as many bushels of soybeans as two decades ago. (At SoyConnection.com, you can click on this map to see the number of farms, acres, and bushels produced in each state.)

Three countries produce 80 percent of the world's soybean

China’s insatiable appetite

China cannot get enough soybeans. When China entered the WTO in 2001, the country was already consuming 15 percent of the world’s soybeans, driving 19 percent of global trade in soybeans. By 2018, China’s appetite had grown 815 percent according to the U.S. Farm Bureau, which says China’s demand now supports 62 percent of world trade in soybeans.

According to the Farm Bureau’s calculations, China consumes one-third of every acre harvested in the world – an amount equivalent to or more than total U.S. soybean acreage. Around 60 percent of U.S. yields were sold to China in 2017, which means there was a lot at risk for U.S. farmers caught in the crosshairs of the trade war that unfolded in 2018.

A pawn in the trade war

In July 2018, the United States fired the first tariff shot in its efforts to seek redress for the intellectual property theft cited in its Section 301 investigation into China’s practices, by imposing tariffs on $34 billion worth of China’s imports. China responded with 25 percent tariffs on an equivalent amount, including on soybeans from the United States. The tariff has remained in place as leverage in the trade war – a proxy for whether China perceives progress is being made or not in the negotiations.

In intermittent gestures of goodwill, China agrees to make purchases but has often not fulfilled orders for the promised amounts. When President Trump angrily tweeted on August 23 this year that China was not negotiating in good faith and that U.S. tariffs would cover more imports from China, China responded in part by adding five percent to its tariffs on soybeans.

A factor in price fluctuations

The Food and Agricultural Policy Research Institute at the University of Missouri recently offered a gloomy forecast for lower prices for soybeans: $8.43 per bushel for 2019-20, dropping further to $7.94 per bushel for the 2020-21 marketing years. They say lower prices are resulting from a combination of adverse weather, African swine fever disease that is decimating herd inventories throughout Asia and therefore weakening demand for feed – and the ongoing trade dispute.

On May 13 this year, coincident with some fiery presidential tweets expressing frustration with China, soybean prices reached a 10-year low. USDA estimates that, at 4.54 billion bushels produced last year, a drop in average price per bushel from $9.33 in 2017 to $8.60 in 2018 translates to losses for U.S. soybean farmers of $3.3 billion.

Soybean Prices react to China trade war

Bait and switching

Adding to the strain of lower prices, China has drastically pared back its soybean orders from the United States. In 2016, the United States shipped 36.1 million metric tons of soybeans to China. In 2018, sales dropped to just 8.2 million metric tons.

The Chinese government is able to avoid its own tariffs by directly purchasing U.S. soybeans which it then sells to private users in China. The government has also granted tariff exemptions to Chinese soybean crushers. Just this week, the government granted an exemption to state-owned, private and international companies to import 10 million metric tons of U.S. soybeans tariff-free. Overall, the quantities purchased through these mechanisms is not nearly enough to make up for the vast shortfall in supply from the United States.

So, China is buying more from Paraguay, Uruguay, Argentina, Canada and in particular from Brazil, which has moved in to supply 75 percent of China’s total imports. For U.S. soybean exporters, lower prices per bushel have attracted new buyers from Europe, Mexico and elsewhere, but those sales are not enough to replace lost sales in China.

Plummeting U.S. Soybean Exports to China

Homegrown

China is hedging its bets by rejiggering the incentives it provides to its own farmers. Upon releasing a new white paper, the head of the National Food and Strategic Reserves Administration said that even though China’s food production and reserves are strong, “We must hold the rice bowl firmly in our hands, and fill it with even more Chinese food.”

In addition to directly investing in agricultural infrastructure in Brazil, neighboring Russia, and other suppliers, the Chinese government has set a goal to increase domestic soybean production in five years from 16 million to 24 million metric tons, according to the U.S. Soybean Export Council.

News China reported in January that Chinese farmers in Heilongjiang, China’s main grain producing province, are being provided incentives to switch from wheat and corn to planting more soybeans. For years, the Chinese government has offered price supports for corn. Under new policies, crop rotation can earn Chinese farmers $322 per hectare in subsidies in addition to subsidies of between $373 and $430 per hectare offered by provincial authorities.

The Ministry of Science and Technology is also supporting trials of hybrid soybean seeds that are more weather-resistant and could more than triple the average yield for soybeans grown in China.

China's Soybean Journey

Long term disruptions

It’s possible the United States and China will ink a partial deal in the coming weeks that provides relief for American soybean farmers.

The American Soybean Association says it is “hopeful this ‘Phase 1’ agreement will signal a de-escalation in the ongoing U.S.-China trade war… rescinding the tariffs and helping restore certainty and stability to the soy industry.”

China has reportedly promised to purchase $40 billion to $50 billion in U.S. agricultural goods, which would be scaled up annually. That would be double the $24 billion China spent on American farm goods in 2017.

When seeds are in the ground, the acreage is committed, but as American farmers wait and watch the trade war, they are surely thinking about how to plant around these disruptions in outer growing years.

Over the last year, some reliable overseas customers are buying up stocks of U.S. soybeans that would otherwise have gone to China and some new customer relationships are being forged in emerging markets such as Egypt, Bangladesh, Pakistan and Southeast Asia.

When the tariffs are permanently removed, it will remain to be seen whether trading patterns will also have permanently shifted.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.