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WELCOME TO OUR PRESENTATION SOYBEAN TRADE RELATIONSHIP BETWEEN US-CHINA DURING THE TRADE WAR PRESENTED BY GROUP 11 PAGE 05 PRESENTATION OUTLINE BACKGROUND US-CHINA SOYBEAN TRADE DURING THE TRADE WAR DOMESTIC SOYBEAN INDUSTRY PRIOR TO THE TRADE WAR RECOMMENDATIONS TO MITIGATE THE STALEMATE BACKGROUND "Trade wars are like shooting oneself in the foot They may provide temporary relief, but the longterm consequences can be severe." Jack Ma PRIOR TO THE TRADE WAR DOMESTIC SOYBEAN INDUSTRY THE USA With approximately 117 million tons of grain harvested as of 2016, the United States has become the world's top producer of soybeans thanks to the availability of huge agricultural space and labor In the 21st century, Iowa produced the most soybeans in the United States, followed by Illinois and Minnesota In 2015, more than 500 million bushels of soybeans were produced in Iowa and Illinois GLOBAL EXPORT SHARE Approximately 70% of all soybean exports worldwide come from the United States and Brazil combined SOYBEAN'S PRODUCTS In addition to being consumed directly, the beans are employed in the production of biodiesel, tofu, animal feed, vegetable oil, and numerous other products, including lubricants CHINA About 60% of the world's imports of soybeans come from China, with more than 30% are from US's shipments Despite effort to promote domestic soybean production, the output still fails to meet the huge demand DEMANDS FOR SOYBEAN PRODUCTS FOOD STUFF tofu, soybean milk, dietary supplements, and soy sauce oil and high-protein meals that are fed to Chinese cattle ANIMAL FEED US-CHINA'S HISTORICAL SOYBEAN TRADE CHINA TRADE POLICIES TRADE REFORMS Intellectual Property Protection Reforms In 2019, China passed the Foreign Investment Law China also emphasized collaboration and cooperation with foreign companies Market Access Reforms: Reduce restrictions on foreign ownership in sectors Create a more competitive and open business environment IMPACTS OF TRADE WAR ON US-CHINA SOYBEAN TRADE U.S-CHINA SOYBEAN EXPORTS-IMPORTS BEFORE Trade War In 2000: soybean exp to China = 62% all US soybean exp > growth rate of US exports to China exports US global DURING Trade War In 2018: soybean exports significantly fell to $3.1 billion 18% of US soy exports → Compared to 2017: $12.3 billion 63% of US soy exports → U.S-CHINA SOYBEAN EXPORTS-IMPORTS → 15.5% reduction (compared to 2017 and 2018) China turned to Brazil to fulfill its soybean supply needs → A decrease in soybean planting areas in the U.S U.S-CHINA SOYBEAN EXPORTS-IMPORTS United States increase tariffs on Chinese goods to 25% ≈ $200 billion an immediate reduction of Chinese demand for U.S soybeans to zero Market share for American producers shifted to Brazil and Argentina CHANGE IN MARKET SHARE 2018-2019: Brazil experienced a 36% increase in soybean exports to China (63 million tons) 2018: Typical cyclical pattern of China's increased purchases of U.S soybean disappeared 2019: Some U.S soybeans were reintroduced to the Chinese market IMPACTS ON U.S SOYBEAN FARMERS US agricultural exports dropped by $27-$30 billion between mid-2018 and end of 2019 → rising debts, increased production costs, declining incomes IMPACTS ON U.S SOYBEAN FARMERS Market disruptions Sudden disruption leaves U.S farmers with excess supplies and limited selling options Two main consequences: lower prices affected farmers' revenues and profitability finding alternative buyers is challenging farmers adjust their strategies and incur additional costs → → transportation companies, storage facilities, and other soybean-reliant industries IMPACTS ON U.S SOYBEAN FARMERS Price volatility Mid-2018 to early 2019: a sharp decline of 20% due to disrupted trade flows & reduced demand from tariffs on US Soybean exports → impacted farmers' profitability → hindered their planning and decision-making decade-low in 2018 (below $8 per bushel) IMPACTS ON U.S SOYBEAN FARMERS U.S government package of aid programs Aid package included: → direct payments to soybean farmers Agricultural Trade Promotion Program (ATP) → expand export markets Food Purchase and Distribution Program (FPDP) → assist farmers by purchasing Market Facilitation Program (MFP) surplus agricultural products U.S government package of aid programs aid package was poorly targeted → inequities most affected regions (North, Midwest, and West) received inadequate support some areas received more aid than losses (South) concerns about fairness & effectiveness need for better alignment with the regions/sectors most impacted RECOMMENDATIONS FOR IMPROVING US-CHINA SOYBEAN TRADE RELATIONSHIP POLICY RECOMMENDATIONS FOR THE UNITED STATES MEANING BENEFITS COSTS ESCALATION DE-ESCALATION Putting more pressure on China to reach an agreement by inflicting greater overall damage on the Chinese economy compared to the US A gradual process rather than an immediate resolution via implementation of a "stage II" agreement where both countries adhere more strongly to commitments made during negotiations Motivates China to seek an agreement Forces China to adapt quickly to revenue losses and potentially give the U.S an advantage in negotiations When the US imposes tariffs, China responds with equivalent measures US agricultural exports to China reduce Job losses and financial difficulties for American farmers Prioritizes US domestic market & avoid potential backlash from escalation Allows for a diplomatic approach that aligns with Biden's multilateral goals Possible cooperation in areas where American and Chinese interests overlap Raise concerns about US credibility and morality regarding human rights and promoting international norms POLICY RECOMMENDATIONS FOR CHINA 01 Enhance immediate market entry for U.S exporters and investors Guarantee fair competition Reinforce the safeguarding of intellectual property rights 02 Take measures to: Reduce excessive production capacity Eliminate subsidies Abolish policies that hinder fair competition 03 Lift limitations on digital trade Enable unrestricted data flow Eliminate "secure and controllable" obligations THANK YOU FOR LISTENING!