The Trade Numerologist: Farmers Fight Trade War
This column is based on data from Global Trade Atlas.
As the European Union, China and the US dig in for a trade war, one global sector is bracing for its role as foot soldiers in the commercial conflict: farmers.
The modern agribusiness model, popular in EU countries like France and Poland, US states like Nebraska, Iowa and Washington, and Chinese regions like Chongqing, Yunnan and Guizhou, depends on massive markets that can absorb all the rice, wheat, corn and soybeans generated by big farms. Now the imposition of duties on tens of billions of dollars of imports by Washington, Brussels and Beijing is putting those markets at risk.
The current trade war "has left family farmers bearing the brunt of retaliation from not only China, but also Canada, Mexico, and the European Union," Roger Johnson, president of the National Farmers Union in the US, wrote in a recent editorial.
The conflict "is coming on top of an already very poor farm economy, which has declined 52 percent over the past five years," he adds. "Since the start of June, soybean prices dropped by more than $1.50, corn by $0.50, and wheat by $0.30. American corn, soybean and wheat farmers have already lost a collective $13 billion as a result of our current trade war with the world."
Luckily for Mr. Johnson, helping domestic farmers is politically popular in every country, so governments are accompanying their trade volleys with new assistance packages.
In response to US tariffs, the European Union, Canada, China and Mexico have all retaliated by slapping duties on US agricultural exports, including soybeans, pork and orange juice, all made in places where President Trump needs continued support.
Already, there's been an impact. In particular, US pork producers have been hard hit by a tariff of 62% tariff in China. Hog prices have fallen, and US producers have compensated by selling swine elsewhere.
US pork exports, first 6 months, 2018
- Japan $771.9 million (+1%)
- Mexico $565.4 million (+2%)
- South Korea $345.8 million (+47%)
- Canada $164.5 million (-13%)
- China $127.9 million (-10%)
- Colombia $97.2 million (+63%)
- Australia $92.3 million (+6%)
- Dominican Republic $43 million (+16%)
- Honduras $27.8 million (+14%)
- Chile $25.1 million (-15%)
In a trade war, exporters also lose market share to competitors doing bilateral trade deals with each other. That's contributed to the blood bath in the US orange juice sector. Overall orange juice exports fell to 27.8 million liters during the first six months of 2018, down 75% from the same period in 2017.
US orange juice exports, first 6 months 2018
- Canada 13.5 million liters (-37%)
- South Korea 6.5 million liters (-65%)
- Dominican Republic 2.6 million liters (-6.3%)
- Netherlands 1.4 million liters (-98%)
- Costa Rica 1 million liters (-63%)
To be sure, tariffs aren't the only reason that orange juice exports are down. In a report published last month, the US Dept. of Agriculture said that US production "is expected to fall 24% to 3.5 millions tons" this year "as unfavorable weather and citrus greening disease continue to cause fruit to drop in Florida before it is ripe. Exports, consumption and fruit for processing are all lower with the smaller crop."
Meanwhile, "China's production is projected up 300,000 tons to 7.3 million as a result of favorable weather and yields," the USDA wrote.
In China, the government is reacting to cuts in soybean imports from the US by ordering its farmers to plant more. Beijing will increase its acres devoted to soybeans to 22.6 million acres from 21 million acres.
It's increasing imports from other countries, like Brazil and Russia, and drastically cutting imports from the Americas. Interestingly, China has also cut shipments from Canada, is if to make it harder for US exporters to trans-ship via the country's northern neighbor.
China soybeans imports, first quarter, 2018
- US 12.3 billion kg (-21%)
- Brazil 6.2 billion kg (+129%)
- Canada 554.9 million kg (-51.5%)
- Russia 393.9 million kg (131.5%)
- Uruguay 95.1 million kg (Was zero in 2017)
While the biggest beneficiary of the US-China spat appears to be Brazil, Beijing also said it would cut tariffs on imports of soybeans from India and other countries in Asia to zero.
Meanwhile, in the US, the Trump administration is also taking action to help farmers. In late July, it announced a $12 billion aid package to help the agricultural sector. The US government will support prices of soybeans, sorghum, cotton, corn, wheat and pork, said Sonny Perdue, the agriculture secretary. "This is a short-term solution that will give President Trump and his administration time to work on long-term trade deals," he said.
Although the EU has agreed to keep increasing imports of soybeans from the US, it continues to administer tough protection of its farm markets, a major sticking point for US officials.
The only agricultural sector where the EU has sizeable imports is fruits from warm-weather countries, and fish. And the US, despite having a sizeable fisheries sector, is only the eighth biggest exporter of fish to the EU.
EU fish imports, first 5 months, 2018
- Norway $3.3 billion
- China $781.3 million
- Iceland $590.8 million
- Morocco $467.6 million
- India $427.9 million
- Vietnam $365.2 million
- Russia $355.5 million
- US $341.4 million
- Ecuador $310.1 million
- Turkey $250.2 million
Total imports of fruits and nuts amounted to $11.2 billion during the first five months of 2018, compared to only $3.1 billion in cereals, $2.8 billion of vegetables, roots and tubers, and $2.1 billion of meat.
Those are small numbers for a region of 500 million and a $15 trillion economy that represents a fifth of the world's wealth production. EU farm tariffs and quotas remain among the most restrictive on the planet.
If President Trump is serious about his stated goal of breaking down those walls, expect Europe to keep pushing back and the trade war to keep raging.
One of the EU's reasons for being is that farmers are worth fighting for.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
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