China-US Trade War’s Effect on Soybean Farming

Relevance to Major

The topic chosen for this particular essay attempts to study the relationship between the US and China’s trade war with regards to soybean farmers in the US. I am currently majoring in economics, and as a result, my future work will be dictated highly by knowledge in current global and local economic trends. Thereby, doing an in-depth analysis of this topic as well as carrying out the necessary research will mark a starting point in the appreciation of economic trends. Additionally, I will write a thesis on a similar topic to graduate with a bachelor’s degree; hence the relevance of this topic to my major is pronounced.

Scope of Project

Main Arguments

From the research that I have carried out so far, my primary argument or rather a precedent to my thesis is that the trade war between China and the US affects soybean farmers negatively. However, from an economic stance, that answer is not enough on its own hence I will have to tie it with economic theories and reasoning for a holistic and impartial view. Thereby, my other argument will have to assess whether the trade war is not like any other variable that was bound to affect soybean farmers. Lastly, my final argument at the time of this writing is that what both soybean farmers and the government should do to limit the harmful effects of the trade war.

Parameters and Key Definitions

The good thing about this particular research topic is that the parameters are readily available and easy to identify. The primary parameter to be used will be the sales of soybeans in the US with great focus on the export figures to China. Financial data is almost always the necessary parameter that needs to study in economics. There are a few critical definitions in which the audience needs to understand beforehand. And these are Trade War, Trade Imbalance, and Trade Cooperation, which will be defined in the research paper with great detail.

Three Primary Sources

To help steer the direction for this research, I chose three primary sources that talked of similar theses. A brief literature review of the sources is below:

Chong, T., T., L. &., Li, X. (2019). Understanding the China-US trade war: causes, economic impact, and the worst-case scenario. Economic and Political Studies 7(2), Pp. 185-202, https://doi.org/10.1080/20954816.2019.1595328.

The above article details the China-US trade war with regards to what caused it when it started it and, most importantly, its effects. The significant finding in this article is the conflict caused by trade imbalances, whereby both parties felt like victims. With regard to the research paper, this article gives the background information on the China-US trade war.

Representative, T. O. (2019, 02 10). The People’s Republic of China. Retrieved from The Office of the United States Trade Representative: https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china

The above website article gives detailed insight into the statistics concerning trade between China and the United States. This source will provide an excellent statistical base for the people as it is exceptionally credible.

He, Rongrong, et al. “How the trade barrier changes environmental costs of agricultural production: An implication derived from China’s demand for soybean caused by the US-China trade war.” Journal of cleaner production 227 (2019): 578-588.

He et al. present an excellent foundation for the effect of the China-US trade war on soybean farmers. The paper analyses the various trends surrounding the soybean industry, albeit in China. This paper will be beneficial in comparing the effects of the conflict between American and Chinese farmers.

Overall Aim for the Research

The overarching objective for this research is to dictate whether or not the trade war between China and the US is negatively affecting America soybean farmers. If there seems to be a correlation, another aim for this research would be to find solutions that can aid in rectifying the situation for American soybean farmers.

Outline of the Paper

Introduction

• General Introduction to the Paper
• Thesis statement

Part 1: Background information and Literature Review

• History of the China-US trade war
• Past researches into how the soybean farmers come into play
• Exploring gaps or relevancies of similar studies.

Part 2: Exploring Causes of the China-US trade war

• Analysis of the various factors that resulted in the China Us trade war
• Evaluating how this causes tie in with soybean farmers.

Part 3: Exploring Effects of the war on soybean farmers

• Deeply evaluating the effects with regards to both the economic, political, and even economic spheres associated with the Soybean farmers.

Part 4: Solutions

Part 5: Conclusion

• Summary of the paper
• A call to action

Timeline

Literature Review

Introduction

Most of the sources that I have been studying for my research paper try and attempt to delve into the politics of the China-US Trade War. While it is essential to understand the effects, the most imperative thing in my study is to know how this relates to the impact on soybean farmers. However, there are a few authors who go directly and link the China-US trade war with the ongoing harsh climate of the soybean market. For instance, Song et al. detail the struggle of soybean imports that have been directly caused by the emergence of this economic war. All in all, this literature review delves deeper into sources that are more detailed when it comes to soybean farming and how it has been affected by the China-US trade war.

Brief Summary

For this particular literature review, it is important to identify two primary sources that have influenced the following analysis.

William, G. W. (2012). “The Chinese Soybean Industry: A US Success Story?”. 4th CAERI-IFPRI Annual International.

This article examines how the Chinese soybean industry grew into an American economic goldmine. It examines the programs developed to facilitate the growth of the trade and also the returns made by Americans from trading on the soybean with the Chinese government. It also provides critical details of how the failure of the industry or trade could affect the growing agricultural sector in America and the grave effects on the economy of the country.

Zhou, Y. (2018). “Evaluating Potential Long-Run Impacts of Chinese Tariff on US Soybeans. farmdoc daily 8.

This article by Yujun Zhou identifies the chases of the trade war between America and China and how the soybean trade is affected by this conflict. Zhou provides financial details of the subsequent losses on other exports by the American farmers to China, which are likely to be affected by the growing conflict. Zhou is specific on the tariffs placed upon goods by both countries and how they are drawing other global markets into the monopoly previously held by America on Chinese soybean imports. The effects of the tariffs are discussed further in relation to losses facing soybean farmers in America.

Synthesis of Existing Research

Impact of Chinese Trade War on Soybean Farmers

The trade war between China and the United States is definitive from global economy supremacy relations between the two superpowers. The United States president-Donald Trump initiated the trade wars back in 2018 with the intent to subdue China into negotiations on concerns raised by American exporters (Zhou, 2018). However, China responded by calling for anti-dumping of American sorghum exports. The trade wars escalated through tariffs on products such as steel, aluminum, grain, and soybean. The impacts of these tariffs were ignored, nevertheless, and more sanctions and tariffs were placed on both countries. Eventually, the detrimental effects of the sanctions erupted on soybean farmers who previously profited from the international trade.

It Affects the United States Soybean Production

According to Song, China is the number one importer of soybean (Song, 2009). The imports are due to the income growth within the Chinese economy, which has consequently increased the need to consume soybean products. It is also due to the change in Chinese diets that include plenty of protein, which means more soybeans for livestock soymeal. The increased foreign investments in crushing facilities by China have also encouraged the import business of Soybean from The United States, Brazil, and Argentina. The trade tariffs have, therefore, affected farmers in America who depended on soybean to raise income.

Dr. Gary supplements Song’s ideology of soybean decline in America by noting that American farmers previously earned a 6.4 dollar return on every dollar invested in the soybean production (William, 2012). The tariffs raised by China on soybean imports to China means that any extensive production of soybean is a risky venture due to the lack of a sales partner. This will eventually cost American farmers who had neglected cotton and corn in favor of soybean production.

There is the loss of market

The potential long-run effects of the trade tariffs between China and the United States will mostly affect the American soybean farmers. China imports 41 percent of the global soybean productions, with America being its leading importer. The other leading markets for soybean include Japan, Mexico, and twenty countries from the European Union. However, these other markets have a low demand for soybean compared to China, which means that America will lose a significant customer in the exaggerated trade wars. In his dissertation, Zhou also lays to light the fact that the decline of soybean importation by China will have a cumulative impact on products such as grain and oilseed exports (Zhou, 2018). This is because these products were exported with soybean to the crushing facilities in China, and thus, a trade war would draw these two products. This will potentially withdraw markets for the United States farmers in the Chinese economy.

Huang affirms this in his paper, Trade Linkages and Firm Value, where he points that the market power of China allows it to change its market with ease due to the global production of soybean in Brazil and Argentina (Huang, 2018). The lack of monopoly on soybean production and exportation leaves American soybean farmers facing stiff competition internationally, and this will predictably result in their editing from the soybean market.

The decline in farming subsidies to soybean farmers

The United States Soybean Check-off program was developed to encourage American farmers to invest and expand the growth of soybean, which was slowly becoming a major exporter to China from the Agricultural sector. The program provided subsidies and initiated policies that favored soybean production through fertilizer prices and extension services. However, after China imposed a 25 percent punitive tax on Soybean imports from the United States in 2018, the American government immediately showed signs of cutting subsidies to soybean farmers and focusing on other products such as machinery. The farmers will also face rough costs of imported farm inputs for soybean production as the government is reluctant to invest in a product that is slowly losing market (Huang, 2018).

The Illinois soybean price decline in 2018 from 10.34 dollars per bushel to 7.8 dollars amplified the woes of the soybean farmers even within America. The fall of the international supply chains has created a declined demand for soybean internally, thus the low prices (Hao, 2019). The marginal effect on internal sales further affected the government’s investments to soybean farmers and instead opted to compensate them financially for the losses from the trade tariffs. This, however, does not diminish the low subsidy rates, which inflate prices of soybean fertilizers and seeds.

China stands to gain from the protracted trade war. Its farmers also stand to gain as the focus of soybean production in China will be amplified; thus, they will gain subsidies, favorable policies, and a ready market within the most significant global market (Hao, 2019). It is crystal clear that American farmers will lose soybean markets to Brazil, Argentina, and Russia, which will encourage their production to meets the Chinese demand. American soybean farmers will soon be compelled to produce traditional products such as corn and cotton, which are less marketable and thus loss-oriented.

References

Hao, X. (2019). The US-China Trade War: The Effects on The Soybean Industry.

Huang, Y. (2018). “Trade Linkages and Firm Value: Evidence from the 2018 US-China Trade War”. Available at SSRN 3227972.

Song, B. (2009). “Competitive analysis and market power of China’s Soybean import market.” International Food and Agribusiness Management Review, 12.1030-2016-82749, 21-42.

William, G. W. (2012). “The Chinese Soybean Industry: A US Success Story?”. 4th CAERI-IFPRI Annual International.

Zhou, Y. (2018). “Evaluating Potential Long-Run Impacts of Chinese Tariff on US Soybeans. farmdoc daily 8.

He, Rongrong, et al. “How the trade barrier changes environmental costs of agricultural production: An implication derived from China’s demand for soybean caused by the US-China trade war.” Journal of cleaner production 227 (2019): 578-588.

Representative, T. O. (2019, 02 10). The People’s Republic of China. Retrieved from The Office of the United States Trade Representative: https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china

Chong, T., T., L. &., Li, X. (2019). Understanding the China-US trade war: causes, economic impact, and the worst-case scenario. Economic and Political Studies 7(2), Pp. 185-202, https://doi.org/10.1080/20954816.2019.1595328.