Currently there is a trade war going on between China and the US over soybean imports. China has said she refuses to import any more US soybeans until the US takes off the tariffs that Trump has placed on her:
Markets greeted President Trump and President Xi’s decision to re-start trade talks with jubilation. But as we’ve been saying from the beginning, this doesn’t mean a trade deal is a given – quite the opposite, actually.
That’s because Beijing and Washington have already begun to parrot some of their demands from before talks collapsed. And with Washington still unwilling to roll back all of the trade war tariffs, something that Beijing sees as non-negotiable, it could be a long time before the market gets the trade deal is so desperately seeks.
In the latest sign that suspicions among senior Chinese officials continue to simmer, and that the hastily cobbled G-20 ceasefire is suddenly on the rocks (again), the South China Morning Post reported on statements from a government spokesman and state-run media claiming that the commentary on Taoran Notes, a popular economic news source on the mainland, said Beijing would reneg on its promise to buy tons of agricultural goods from the US if Washington “flip flops” again, and that talks would “go backward again” unless Washington is willing to remove all trade-war tariffs.
“If the US flip-flops again in the negotiations, the promises to buy American agriculture products will also be overturned,” Taoran Notes said.
It added that China would have to consider its domestic demand and the opinions of domestic companies before buying US agricultural products.
SCMP’s sources confirmed that American negotiators would return to Beijing next week for what would be the 11th round of talks between the two sides since the trade spat first erupted more than one year ago.
If the issue of the US lifting its tariffs on Chinese goods can’t be resolved (which it almost certainly won’t be), talks could “break down immediately,” one source warned, leaving Washington to slap tariffs on another $300 billion+ of Chinese goods
If the negotiators are unable to resolve the issues, the talks could “break down immediately,” with Washington going ahead with new tariffs on US$300 billion of Chinese products, the source warned.
A Chinese source also confirmed that American negotiators would return to Beijing next week to iron out the details of what was discussed.
In any event, before moving ahead with promised purchases of American soybeans and other ag products, Beijing has been playing coy, insisting that they want to see Washington formally remove Huawei from the ‘blacklist’ as Trump promised.
Then, Gao Feng, the influential spokesman for the Chinese Ministry of Commerce, said a trade deal would be “impossible” without the complete removal of US sanctions˜on China.
On Thursday, Chinese Ministry of Commerce spokesman Gao Feng said a trade deal would only be possible if the US called off all tariffs on Chinese imports.
Such a move would require the Trump administration to give up its insistence that some levies remained in place to ensure Beijing honoured the deal. The US had argued that these levies should be lifted only when China made progress on certain agreed-to goals/
“If both sides are able to reach an agreement, the tariffs that have been imposed have to be removed completely. China’s attitude on the issue is clear and consistent,” Gao said, adding that both countries’ trade teams had been in touch about resuming talks.
Global Times editor Hu Xijin put it another way: China will only fulfill its commitments once the two sides reach a deal.
Apparently, Beijing has a very different idea of how these talks will go down. But any anxious investors can find solace in this: If talks collapse again in the coming days, it would virtually guarantee that the Fed will cut the Fed funds rate by 50 bps later this month, and therefore, would be bullish for equities, since both bad and good news is bullish now. (source, source)
The immediate response from many people has range from condemnation to surprise to confusion.
Soy is a heavily traded commodity as food for humans as well as animals. In the case of China, soy is used as a common food source for pigs. China produces soy, but it is a very small amount, since China has many farming issues due to extensive pollution caused by industrial waste mismanagement so much that approximately 40% of Chinese farmland is unusable because of it.
China is planning on going to war with the US. In order for her do to this, she necessarily has to reduce her dependency on US assets. However, this is a major problem since the Chinese own tremendous amounts of US debt and as the US is the most powerful nation in the world and her currency is based on a fiat dollar, the US could simply refuse to pay China or print enough money to pay the Chinese off, thus devaluing her own currency and in the process “blaming China” on it so to spark a war with her, at which point she can establish a new dollar and continue her current hegemony with little interruption. I discussed this in a piece in January 2019.
China also has a food production issue, as noted above due to her agricultural situation. She has been working at reducing her dependence on US bought rice and other foodstuffs, but this has a long way to go with her population.
According to MIT statistics, Chinese imports for soy constitute 63% of the global market, with the next highest being Mexico at 3%. By comparison, 45% and 38% of all soybean exports come from respectively Brazil and the US, with the next highest being Argentina at 4.9% and Uruguay at 3.8%
The issue currently is less to do with imports for soy, as currently the crop being exported to China is from Brazil as they are in the southern hemisphere. What matters is the current crop of soy growing right now that will be harvested for the winter months as that will come from the US.
No matter what China does, she cannot avoid purchasing soy from the US because Chinese pigs are raised on soybeans, and even if China were to buy 100% of soybean products from Brazil, Argentina, and Uruguay (which is not going to happen), it still leaves her needs short.
Now consider the recent “pork flu” that is going around.
The US accounts for 16% of world pork exports. China is the largest pork consumer in the world at 50%, and she does not even factor into the top 15 producers of the meat, which when one considers Canada and the nations of Western Europe, make up 80% of pork production in the world.
China needs US pork. It does not matter if pork flu affects the American hog supply because America dominates the pork market. If anything, prices rise and people are grumpier when buying lunch meat in line at Wal-Mart. The biggest reprisal one has to fear will be the underpaid cashiers who will get verbally mistreated by a customer having a bad day.
China however has a lot to fear. A serious hit to the pork market could cause massive famine and instability in her because without pork she cannot feed her people. When compared with beef and chicken, pork is cheap, clean, and easy to feed to a lot of people and lasts for a long time.
China’s attempt to “force” the US to cave to tariffs is a joke, as the current US crop is still growing. This fall she is going to be forced to buy US soybeans at some point inevitably in order to feed her hogs to maintain national stability, and so it appears that she is attempting to make some kind of agreement with the US that clearly is not going to work and the US knows it.
China can scream all she wants but it is just that- screaming -without the force necessary to back up her complaints because the US holds dominance over her in the markets.
China has lost approximately 22% of her pig herd thus far due to this flu. However, what she lacks in national production she compensates for with importation.
Imagine what would happen if, “accidentally”, this pig flu reached Europe or the US and damaged the livestock there to such a point that imports would have to be significantly reduced.
It wouldn’t simply be a period of destabilization. It would be the setting for a potential revolution, and the government cannot have this and will seek to stop it at all costs.
For now ignore the Chinese chest thumping and demands. China is strong, but she is also very weak in key areas and does not have any easy way to fix her problems, and all the US has to do is to help with the spread of natural issues such as disease and the nation will be rendered helpless to fight. If she is forced to cave, then Trump naturally will present this as a “Presidential victory” to be used as fodder for the next election over “liberals who want to destroy America.”