By Andrew Whitelaw | Source: CME, Mecardo
Trump. The president who sticks to his promises. Overnight the trade scuffle, turned into a trade war with China increasing the number of imports which would attract tariffs after increased rhetoric from the US president. Although not wholly unexpected, this trade war can have huge ramifications for global trade.
The Chinese government were never going to stand back whilst Trump continued to sabre rattle and threaten increased tariffs. The new list is extensive and could impact up to $50bn of trade. The products include soybeans, wheat, corn, sorghum & whisky*.
Through reading the list of products likely to be hit by tariffs (here), it could be construed as a savvy political act, as many of the products/commodities will impact the pockets of voters in Trump strongholds.
The impact of the tariff has been quite stark, overnight the Chicago soybean futures contract traded in a 58¢/bu range (figure 1). The introduction of tariffs specifically on US exports has instantly made US soybeans uncompetitive into China and will make it easier for alternate origins to compete i.e. Argentina and Brazil.
The tariffs however, leave a number of questions around the capability of China to continue with trade restrictions. In figure 2, the imports/exports and production of soybeans is displayed. Over the past ten years China has on average imported 62% of the worlds export soybeans, this places a huge strain on China’s ability to find alternate origins, especially in light of the US providing 40% of the worlds exports.
In order to satisfy the demand into China without paying tariffs, close to 100% of the global trade in soybeans (ex USA) will have to go into China. This would have flow on impacts into other soybean destinations, which will likely change origin to USA.
Interestingly, China has not declared when tariffs will be in place, and there is some speculation around the fact that Chinese purchases tend to be reduced at this point of the year.
*Only real whisky comes from Scotland anyway.
It is not wholly surprising that this trade war has commenced. The Trump campaign was largely based on curtailing the advance of China, and regardless of opinions on him, he tends to do as he promises. The real test will be whether there is any further escalation in tariffs.
The good fortune we have seen with barley and sorghum imports into China is likely to continue, as US exports will be uncompetitive.
Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report.
Mecardo will send you its latest market analysis outlook delivered to your Inbox as it's published. You will also receive one month Premium access for free.
You tell us what information you want to hear about, so you'll only be alerted to information that is relevant to you.Learn more about Mecardo Sign Up Now!