Soybean trade relationship between china and the usa during the trade war

Summary: The soybean trade relationship between China and the USA has overcome a great deal of volatility during the trade war between nations. Soybean is considered one of the most crucial items in the trade relationship between China and the USA Before the outbreak of the trade war, The USA had exported a great deal of soybean and soybean products to China. Since 2018, however, both nations have imposed tariff and trade policies on each other, as a result, soybean has become one of the most strongly impacted products. China, formerly the largest export market for US soybeans, has imposed tariff on soybean and soybean products produced by the USA, which resulted in a remarkable effect on the USA agriculture industry. The United States, in a trade conference, has raised tariffs on Chinese goods, including soybeans, with a view to increasing economic pressure on China and demand that it implement fairer trade measures. The soybean trade relationship between the two countries has been affected by the trade war. American agribusiness has had to find new markets to export soybeans, and some American farmers have had to change crops or face financial difficulties.

Soybean trade relationship between China and the USA during the trade war Trường đại học Ngoại thương, Hà Nội, Việt Nam Summary: The soybean trade relationship between China and the USA has overcome a great deal of volatility during the trade war between nations Soybean is considered one of the most crucial items in the trade relationship between China and the USA Before the outbreak of the trade war, The USA had exported a great deal of soybean and soybean products to China Since 2018, however, both nations have imposed tariff and trade policies on each other, as a result, soybean has become one of the most strongly impacted products China, formerly the largest export market for US soybeans, has imposed tariff on soybean and soybean products produced by the USA, which resulted in a remarkable effect on the USA agriculture industry The United States, in a trade conference, has raised tariffs on Chinese goods, including soybeans, with a view to increasing economic pressure on China and demand that it implement fairer trade measures The soybean trade relationship between the two countries has been affected by the trade war American agribusiness has had to find new markets to export soybeans, and some American farmers have had to change crops or face financial difficulties However, in 2020, the two countries signed a phase trade agreement, in which China committed to buy more US soybeans in the following years This has created several opportunities for the US agricultural industry to boost soybean exports and limit damage from the trade war Keywords: Soybean, Tradewar, China and the U.S Abstract The global economic slowdown, particularly the danger of the U.S.-China trade war that started in 2018, has had a profound impact on the developing soybean business China, the world's top purchaser of soybeans, is largely dependent on imports of foreign soybeans to supply the rising domestic demand for meat and poultry One of the biggest buyers of American soybean exports, China used to purchase 60% of them, but that percentage has now fallen to 20–25% As China has already raised duties on American soybean exports, this article will examine how the current trade conflict between China and the U.S may impact the soybean industry ● Background Donald Trump, the 45th president of the United States, promised during his campaign to curtail unfair trade practices that the Chinese government was promoting (Zheng 2019) Over 300 billion dollars in trade gap existed as of 2016, and President Trump pledged to reduce it through the implementation of supportive trade policies and tariffs.The United States imposed tariffs in March 2018 that led to an increase in steel and aluminum imports from China The Chinese government implemented tariffs to match those recommended by the U.S government in reaction to the U.S government's further tariffs that were placed in place to curb China's trade violations (Finbarr 2019) The implementation of the proposed tariffs has had major effects on the two economies, despite efforts by both governments to reverse the sanctions' effects The majority of the beans consumed in China are imported, making it the leading consumer of soybeans worldwide China imports more than 88 million tons annually on average, with the U.S and Brazil accounting for the majority of those imports A 25% punitive tax on soybean imports from the United States was imposed by China in July 2018, which caused the total volume of imported soybeans to drop by 50% The U.S and China have had particular difficulties as a result of the higher soybean tariffs, with both markets experiencing serious difficulties and hazards (Daniel 2019) Russia and Brazil are being considered as potential substitutes for the U.S as China searches for another long-term supplier However, they are unable to satisfy China's demand since Brazil is unable to fill the void created by the U.S and Russia is unable to fulfill its demand China faces a difficulty in sourcing a sustainable supply of soybeans in the absence of alternatives to fill the gap created by the U.S (Zhang 2019) No anticipated supplier will fill the gap created by the U.S and match the local demand in China because it is anticipated that soybean production levels in Russia will remain constant Russia still has to buy soybeans to meet its own demands, according to the director general of the Institute for Agricultural Market Studies in Moscow Therefore, it is unable to provide China with sustainable exports to satisfy Chinese demand (Zhang 2019) In China, soybeans are a key source of protein for animal feeds and edible oils However, the trade war severely hinders commerce, which will have an overall negative effect on the economies involved While they present potential for third-party trading partners, they also present difficulties for the Chinese and American markets and may negatively affect the rate of economic growth Instead of defending their economies, China and the US's walls and tariffs are hurting them This thesis will demonstrate how the trade conflict has harmed soybean trade, production, and consumption in the two nations ● Problem statement The greatest economies in the world are those of the United States and China, respectively There have been more trade disputes between the two nations since President Trump entered office These have been characterized by a growth in trade obstacles and tariffs between the two countries, which has resulted in a general increase in economic enmity between the two countries The United States had accused China of unfair trade practices, and in an effort to harmonize trade, it had put restrictions on China's commercial freedom in place China retaliated by enacting measures that primarily hurt American agriculture The soybean business has been particularly impacted by the trade conflict, which has a wider effect on American farmers and Chinese customers The start of the U.S.-China trade war has resulted in a sharp decline in overall soybean imports from the U.S., which has increased demand from other countries Brazil has benefited the most from the trade conflict, with an increase in total soybean exports to 66.1 million tons in 2018 This was a 30% rise from 2017, indicating a need to replace the hole the U.S left behind However, this has not been adequate to meet China's need for soybeans, and the market is now looking to Russia as a substitute supply The establishment of trade barriers will have a severe impact on both the Chinese and American markets, perhaps causing consumer and farmer losses and increasing costs ● Objectives The study's aims are as follows: How changes in trade barriers and other factors have impacted soybean commerce, output, and consumption in China and the United States The effects of the decreased soybean trade between China and the United States Literature Review The China–USA trade war, an unprecedented trade conflict between two of the world's largest economies, has created huge challenges to both the USA and China's agricultural economies The trade war was initiated in March 2018 as a result of the USA imposing an additional tariff on steel and aluminum imports for most countries, including China In response to the tariff, China imposed tariffs on 128 different products in April 2018 The China-USA trade war commenced with the US imposing its initial tariff on China in July 2018, which involved a 25% tariff on Chinese imports worth US$34 billion In response, China retaliated, marking the beginning of the first phase of the trade war between the two nations A result of the trade war was a remarkable decrease in the USA exports of agricultural products Soybean exports to China experienced a complete drop to zero during September and November 2018, and they remained at a significantly lower level in both 2018 and 2019 when compared to previous years There have so far been a small number of publications analyzing the impacts of the US– China trade war as these trade policies are fairly recently However, certain articles have utilized the computable general equilibrium model to showcase the negative consequences of heightened protectionism, particularly for the United States and China These studies, including Ciuriak and Xiao (2018) and Bollen and Rojas-Romagosa (2018), primarily focused on the trade war's impact on trade and welfare reduction They examined the economic effects on countries directly engaged in the trade war, as well as other potential targets, predominantly developed nations like the European Union Additionally, they considered countries in close proximity to the United States, such as Canada and Mexico, with a specific emphasis on sectors initially affected by the imposed measures, such as steel and aluminum In this sense, the main purpose of this article are to testify the impacts of protectionist measure, including developing countries such as Argentina, Brazil, and India, and covering other sectors of special interest to this group of countries, such as soy and milk Naturally, with the surge in protectionism between the two largest global economies, emerging countries not directly involved in the trade war can benefit by the change in demand to sectors where they have comparative advantages Therefore, even if the trade dispute generates losses, in terms of welfare and trade, for the US and China and for the world as a whole, certain sectors of emerging countries can benefit Two scenarios are predicted: one where only US measures are considered and another in which Chinese retaliation is considered The overall objective of this paper is therefore to investigate the net effect of the China– USA trade war on farm bankruptcies The specific objectives are to determine whether the trade war has increased Chapter 12 farm bankruptcy numbers even with the considerable government funding or whether the rising number of farm bankruptcy is only a result of the general downward trend in USA agriculture We utilized a panel fixed effect model to examine factors affecting farm bankruptcy filings with the main focus on the impact of the China–USA trade war Our study utilized monthly estimate of variables on state level (contiguous United States) from 2007 to 2019 Monthly Chapter 12 bankruptcy filings rate and numbers are applied as our dependent variable to indicate the financial stress of farmers We divided our factors into agricultural variables, economic variables and government variables apart from the trade war Our paper contributes to the literature on farm bankruptcies and exposes the challenges to isolating significant causal factors Despite the economic importance of, and signaling from, farm bankruptcies, the literature on farm bankruptcies generally Evaluating the impact of the China–USA trade war is important because farmers under these particular circumstances need more focus and assistance from the government, even with the emergency federal government bailout Moreover, the impact of the trade war will be farreaching on farmers because of the shift of international trade partnership between the USA and China Although it is hard to verify whether the trade war will be an eventual boon for farmers as President Trump declared, our focus is on the more immediate impacts on farm bankruptcies To this end, the next section provides an overview of farm bankruptcy in the United States This is followed by a discussion of current conditions of the farm economy prior to the trade war Following this background, we review related literature on USA bankruptcy and the special circumstances of Chapter 12 bankruptcy Our empirical model based on statewide monthly panel data is the presented and the paper concludes US - China Soybean trade prior to the trade war 1.1 Soybean industry in China Asia, where there is the greatest demand for the product, consumes the majority of soybeans Because of the structure of the industry, soybeans are imported from other producing nations and markets rather than being farmed there The Chinese government attempted to increase domestic soybean production in response to the food insecurity, uncertainty, and scarcity of the legumes in the area Although the Chinese government went so far as to implement laws and procedures that would encourage investment in agriculture, the country has not made much progress in soybean output Chinese farmers employed genetic diversity to discover a better kind of soybean than the wild variety that was previously available Glycine max, a genetically modified soybean, is grown in China where it is used to make tofu, soybean milk, dietary supplements, and soy sauce (Gale, Valdes, and Ash 2019; Sneller, Randall, and Nelson 2005) About 60% of the world's imports of soybeans come from China (Gale, Valdes, and Ash 2019) Europe was the main purchaser of soybeans from the United States and Brazil in the 1970s However, this has changed in the twenty-first century as a result of China's rising imports of soybeans, which have now exceeded European import volumes and account for nearly 65% of global imports of soybeans in 2016-2017 (Gale, Valdes, and Ash 2019) China needs soybean imports to supply its needs for animal feed and food oils They are used to make oil and high-protein meals that are fed to Chinese cattle In addition, the profitability of imports is evaluated by comparing the price of meal and oil to the price of imported soybeans For every 1000 kilograms (kg) of imported soybeans, approximately 800 kg of meal and 180 kg of oil are produced (Gale, Valdes, and Ash 2019) 1.2 Soybean industry in the USA Initially grown on a small scale, soybeans steadily gained in importance during World War II (Hartman, Ellen, and Theresa 2011, 2011) For the first time in the 21st century, soybean output exceeded 75 million metric tons as it increased significantly and acquired market domination (Hartman, Ellen, and Theresa 2011) 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 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 (Wiggins et al 2019) Over the past forty years, soybean acreage has increased dramatically due to the high levels of demand for the crop in other nations According to Ramirez, Sukant, and James (2003), the distribution of soybeans in the United States increased by 25% between 1970 and 1980, demonstrating the importance of the legumes to the world Approximately 80% of all soybean exports worldwide come from the United States and Brazil combined (Gale, Valdes, and Ash 2019) In the twenty-first 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 According to Purdy and Langemeier (2019), Illinois produced 41.7 bushels of grain per acre on average from 2013 to 2017 With the promise of huge returns, the US offered incentives to its farmers, including the repeal of laws tying subsidy payments to base acres of corn and wheat, which gave farmers more freedom to base their planting choices on market prices (Gale, Valdes, and Ash 2019) Moving acreage from crops like wheat and corn to soybeans is the reason for the increase in soybean output in the U.S Despite an increase in Chinese tariffs on American soybeans, the 2018–19 soybean harvest was estimated to cover 35.6 million hectares In an effort to make up for losses brought on by the U.S.-China trade war, funds for trade mitigation were given to American farmers (Gale, Valdes and Ash 2019) 1.3 Historical Soybean Trade Between the US and China Comparing them to other participants in the business, the United States and China have been among the most dominant figures in the soybean trade during the past 20 years It was determined that importing soybeans from the United States was economically feasible for China based on a cointegration analysis performed between 2004 and 2016 to estimate China's per capita consumption spending on imported soybeans from the United States (Qi and Qi 2018) With the product being employed in various economic sectors, China has become the world's largest importer of soybeans According to Farzad and Wallace (2018), China bought 93.5 metric tons of soybeans in 2016, which was 65% of the global total Brazilian and American soybean imports account for 44% and 42%, respectively, of China's total imports of soybeans (Farzad and Wallace 2018) China was the leading country to which American soybeans were sent in 2017 According to Gale, Valdes, and Ash (2019), 63% of US agricultural exports to China were soybeans, valued at $12.3 billion Soybean imports significantly affect China's economy because of their size (Qi and Qi 2018) This implies that even a small adjustment in the price at which soybeans are purchased could have a big impact on China's economy US - China Soybean trade during the trade war 2.1 The China - United States trade war a Background of the trade war The U.S.-China trade war is a result of ongoing trade disputes that the two countries have been unable to resolve through official channels The United States has raised concerns about China's use of protectionist trade policies, including export duties, quotas, subsidies, market access restrictions, and intellectual property theft China, on the other hand, argues that it is still a developing country and questions the legality of certain U.S measures against unfair trade practices Tensions between the two countries escalated after China released its Made in China 2025 plan in 2015, which emphasized state involvement in the economy During his election campaign, then-Republican candidate Donald Trump capitalized on domestic concerns and made renegotiating the U.S.-China trade relationship a key part of his foreign policy platform After taking office, Trump implemented policies aimed at protecting American jobs from Chinese competition While efforts were made to improve relations through a 100-day plan in 2017, addressing trade disagreements and opening key markets, underlying structural issues remained The U.S also initiated investigations into Chinese steel imports and Beijing's policies on intellectual property and technology transfer The Trump administration viewed China as a revisionist power and a threat to U.S interests, leading to the imposition of tariffs on various trade partners, including China, in early 2018 In response, the U.S filed a claim against China at the World Trade Organization (WTO), accusing it of unfair intellectual property practices The U.S also restricted Chinese investment in key technologies and imposed tariffs in related sectors China retaliated with its own tariffs and filed WTO claims disputing the legality of U.S sanctions and steel tariffs Despite trade talks, the two countries were unable to reach a resolution, and the trade war escalated as both sides imposed tariffs on each other's products worth billions of dollars in July 2018 b Soybean industry in the USA Initially grown on a small scale, soybeans steadily gained in importance during World War II (Hartman, Ellen, and Theresa 2011, 2011) For the first time in the 21st century, soybean output exceeded 75 million metric tons as it increased significantly and acquired market domination (Hartman, Ellen, and Theresa 2011) 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 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 (Wiggins et al 2019) Over the past forty years, soybean acreage has increased dramatically due to the high levels of demand for the crop in other nations According to Ramirez, Sukant, and James (2003), the distribution of soybeans in the United States increased by 25% between 1970 and 1980, demonstrating the importance of the legumes to the world Approximately 80% of all soybean exports worldwide come from the United States and Brazil combined (Gale, Valdes, and Ash 2019) In the twenty-first 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 According to Purdy and Langemeier (2019), Illinois produced 41.7 bushels of grain per acre on average from 2013 to 2017 With the promise of huge returns, the US offered incentives to its farmers, including the repeal of laws tying subsidy payments to base acres of corn and wheat, which gave farmers more freedom to base their planting choices on market prices (Gale, Valdes, and Ash 2019) Moving acreage from crops like wheat and corn to soybeans is the reason for the increase in soybean output in the U.S Despite an increase in Chinese tariffs on American soybeans, the 2018–19 soybean harvest was estimated to cover 35.6 million hectares In an effort to make up for losses brought on by the U.S.-China trade war, funds for trade mitigation were given to American farmers (Gale, Valdes and Ash 2019) c Historical Soybean Trade Between the US and China Comparing them to other participants in the business, the United States and China have been among the most dominant figures in the soybean trade during the past 20 years It was determined that importing soybeans from the United States was economically feasible for China based on a cointegration analysis performed between 2004 and 2016 to estimate China's per capita consumption spending on imported soybeans from the United States (Qi and Qi 2018) With the product being employed in various economic sectors, China has become the world's largest importer of soybeans According to Farzad and Wallace (2018), China bought 93.5 metric tons of soybeans in 2016, which was 65% of the global total Brazilian and American soybean imports account for 44% and 42%, respectively, of China's total imports of soybeans (Farzad and Wallace 2018) China was the leading country to which American soybeans were sent in 2017 According to Gale, Valdes, and Ash (2019), 63% of US agricultural exports to China were soybeans, valued at $12.3 billion Soybean imports significantly affect China's economy because of their size (Qi and Qi 2018) This implies that even a small adjustment in the price at which soybeans are purchased could have a big impact on China's economy 2.2 Changes in policy implicated the US-China trade war a Changes in the US trade policies During the trade war between the United States and China, the US implemented various changes in its trade policies at different times 2017 Investigation Initiation : In August 2017, the U.S initiated a Section 301 investigation into China's trade practices The investigation focused on intellectual property theft, forced technology transfer, and other unfair trade practices It involved public hearings, consultations, and the collection of evidence from various stakeholders In March 2018, the USTR released a detailed report highlighting China's unfair trade practices The investigation laid the foundation for subsequent actions, including the imposition of tariffs on Chinese goods It marked a significant shift in the U.S approach to trade with China and played a crucial role in shaping the dynamics of the U.S.-China trade war 2018 Tariff Impositions : In July 2018, the United States implemented a 25% tariff on approximately $34 billion worth of Chinese goods, targeting industrial and technological products Certain products were exempted based on factors like their importance to US industries The tariff imposition led to retaliatory measures from China and had significant impacts on businesses and industries in both countries It also marked a turning point in the US-China trade war and set the stage for subsequent negotiations between the two countries 2018 Tariff Expansion: In September 2018, the United States expanded its tariff measures on Chinese goods by imposing an additional 10% tariff on approximately $200 billion worth of imports The expansion targeted various product categories, including consumer goods The objective was to address perceived unfair trade practices by China and create leverage for negotiations The tariffs were implemented in two stages and led to retaliatory measures from China 2019 Tariff Increase The United States escalated the trade war with China by increasing tariffs on approximately $200 billion worth of Chinese imports from 10% to 25% The tariff increase targeted a wide range of products and aimed to address concerns over unfair trade practices The impact of the tariff increase was significant, leading to higher costs for importers, disrupted supply chains, and increased prices for consumers In May 2019, this intensification of tariffs was a response to the perceived lack of progress in the trade negotiations 2019 Blacklisting Huawei: In 2019, the United States blacklisted Huawei, a Chinese telecommunications company, citing national security concerns and alleged ties to the Chinese government This decision restricted U.S companies from conducting business with Huawei without obtaining specific licenses The blacklisting had significant consequences for Huawei, limiting its access to crucial technologies and impacting its global operations The blacklisting also had broader implications for the global technology supply chain and further strained trade relations between the U.S and China The restrictions on Huawei's activities have continued since then, with ongoing scrutiny and regulations surrounding its operations 2020 Phase One Trade Deal: The Phase One Trade Deal was a partial agreement reached between the United States and China in January 2020 It aimed to address specific trade issues and de-escalate the trade war between the two countries China committed to increasing its purchases of U.S goods and services, improving intellectual property protection, and enhancing market access for U.S financial services firms The deal included a dispute resolution mechanism and some tariff reductions However, it was a limited agreement, and many broader structural issues in the trade relationship remained unresolved The Phase One Trade Deal set the stage for further negotiations, but subsequent discussions faced challenges and complexities b Changes in the China trade policies During the trade war between the United States and China, there were several notable changes in China's trade policies 2018 Tariff Retaliation and Import restriction: In response to the initial tariffs imposed by the United States in 2018, China implemented retaliatory measures, including imposing tariffs on various U.S products and implementing import restrictions The tariffs targeted sectors such as agriculture, manufacturing, and energy China aimed to respond proportionally to U.S actions and put pressure on U.S exporters Import restrictions, including stricter quality controls and regulatory scrutiny, were also introduced Agricultural goods, especially soybeans, were a significant target These measures had implications for U.S farmers and prompted some companies to consider supply chain adjustments 2019 Import Tariff Adjustments and Exemption: In 2019, China made import tariff adjustments and exemptions in response to the ongoing trade war with the United States The adjustments included temporary tariff exemptions for specific U.S agricultural products and other goods, aiming to support domestic demand and mitigate the trade tensions Sectors heavily affected by the trade war were targeted for exemptions, such as agriculture At the same time, China continued to increase tariffs on other U.S products, reflecting the ongoing back-and-forth nature of the trade dispute These tariff adjustments and exemptions demonstrated China's flexible approach in managing the impact of the trade war on specific sectors and adapting to the changing dynamics of the negotiations Non-Tariff Measures: In addition to tariffs, China implemented non-tariff measures during the trade war These measures included increased scrutiny of U.S imports, stricter customs inspections, and the imposition of regulatory barriers The increased scrutiny involved more rigorous assessments and documentation requirements, while stricter customs inspections aimed to ensure compliance with regulations and standards Additionally, regulatory barriers such as licensing requirements, certifications, and labeling regulations were imposed, impacting different sectors The non-tariff measures were intended to add complexity and potentially increase costs for U.S exporters, divert trade away from U.S products, and create hurdles for U.S companies seeking access to the Chinese market Intellectual Property Protection Reforms: During the trade war with the United States, China implemented reforms to address concerns about intellectual property protection In 2019, it passed the Foreign Investment Law, which aimed to improve intellectual property rights protection for foreign companies operating in China The reforms included stricter regulations, stronger enforcement mechanisms, and enhanced legal remedies to combat issues such as patent infringement, counterfeiting, and trade secret theft The goal was to streamline the legal framework, align with international standards, and create a more favorable business environment China also emphasized collaboration and cooperation with foreign companies, facilitating information sharing and establishing specialized intellectual property courts These reforms were aimed at addressing U.S concerns and improving intellectual property protection in China Market Access Reforms: During the trade war with the United States, China implemented market access reforms to improve the entry and operation of foreign companies in its market The reforms included reducing restrictions on foreign ownership in sectors such as automotive, financial services, and manufacturing By allowing increased foreign investment and participation, China aimed to create a more competitive and open business environment These reforms provided opportunities for foreign companies to expand their operations, establish joint ventures, and collaborate with Chinese partners The targeted sectors were of particular interest to foreign investors, and the reforms aimed to attract more foreign investment and contribute to the diversification and growth of the Chinese economy 2.3 Impacts of trade war on US-China soybean trade Despite the temporary ceasefire achieved through the signing of the Phase One Agreement in 2020, trade tensions between the United States and China continue to be significant China has not fully met its commitments under the Phase One trade deal, while the United States is undecided about its plans to remove tariffs on Chinese imports Even in agricultural trade, where some progress was made under the Phase One Agreement, the outlook appears uncertain This uncertainty is particularly evident in the soybean trade Ongoing trade tensions between the United States and China, accompanied by their policy responses, geopolitical considerations, and climate shocks, will continue to reshape the global food system The impact of these factors is clearly demonstrated by the soybean industry, which represents a substantial and concentrated portion of global agricultural trade The trade war has had a notable effect on the decision-making of American farmers regarding their planting choices It has resulted in a significant decline in U.S soybean exports and has prompted substantial shifts in global soybean trade patterns a U.S-China Soybean Exports-Imports China is the largest export market for agricultural products from the United States, and soybeans hold great importance in the US-China trade relationship Before the trade war in 2018, the growth rate of US soybean exports to China surpassed that of overall US global exports In 2000, soybean exports to China amounted to $1 billion, which increased to $14 billion in 2016, constituting 62 percent of all US soybean exports that year However, after President Donald Trump assumed office in 2017, trade tensions escalated, leading to a decline in US soybean exports to China In 2018, when the trade war intensified, soybean exports plummeted to $3.1 billion, accounting for 18 percent of US soy exports, compared to $12.3 billion (63 percent of US soy exports) in 2017 (Figure 1) Figure Export Markets for U.S Soybeans In response to the decline in US soybean exports due to the trade war, China turned to Brazil, which is the largest exporter of soybeans to China, to fulfill its soybean supply needs This shift in sourcing led to a decrease in soybean planting areas in the United States In 2019, the soybean planting areas dropped to 76.1 million acres, representing a significant 15.5 percent reduction compared to 2017 and 2018 (Figure 2) Figure U.S soybean planted acreage (2012-2021) The interruption in US soybean imports by China was temporarily resolved after the two countries reached a partial agreement at the G20 Summit in Buenos Aires, Argentina, on December 1, 2018 China agreed to purchase agricultural and energy products from US farmers However, the negotiations between the two nations could not be finalized within the specified 90-day timeframe, resulting in further trade tensions As a consequence of the stalled negotiations, on May 10, 2019, the United States decided to increase tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent This escalation in tariffs further heightened the trade tensions between the two countries and had implications for various industries and sectors beyond soybeans According to a research by B.S., Kansas State University, 2017, The imposition of a 25% tariff by China on soybean imports from the United States has had a significant impact on soybean trade and production between the two countries This tariff was a consequence of escalating trade sanctions The effects of this tariff on soybean trade between the United States and China, which began in July 2018, are illustrated in Figure As depicted in the provided graph, the imposition of tariffs in July 2018 resulted in an immediate reduction of Chinese demand for U.S soybeans to zero Over time, the demand gradually recovered but remained more than 50% lower compared to the previous year It's important to note that factors beyond prices and tariffs influence the demand for U.S soybeans Chinese government policies also play a significant role in shaping the purchasing decisions of state-owned companies, which comprise a majority of the soybean buyers in China Figure China’s Demand of U.S Soybeans from Jan 2016 to Sep 2019 b Changes in Market Share The decline in U.S soybean exports to China resulted in the loss of market share for American soybean producers China turned to alternative suppliers, primarily Brazil and Argentina, to meet its soybean demand These countries increased their soybean exports to China, taking advantage of the trade war and capturing a larger portion of the Chinese market Brazil is in the most advantageous position to address the demand gap for various agricultural products caused by the trade war According to Agribusiness Intelligence, Brazil has experienced a substantial 36% increase in its soybean exports to China over a span of two years In the 2018-2019 period alone, Brazil's soybean exports to China reached a total of 63 million tons The trade data reflecting monthly soybean trade volumes clearly demonstrate a decline in China's soybean imports from the United States following the escalation of trade tensions (Figure 4) The typical cyclical pattern of China's increased purchases of U.S soybeans, usually observed in October, did not occur in 2018 Instead, China opted to substitute Brazilian soybeans for its regular U.S purchases, even though there was a significant drop in the price of U.S soybeans during that time This substitution took place despite the price advantage of U.S soybeans However, after a prolonged period of low U.S soybean prices and the temporary truce reached by trade negotiators, some U.S soybeans were reintroduced to the Chinese market in 2019 Figure China’s Monthly Soybean Imports by Country c Impacts on U.S Soybean Farmers Regarding agricultural products, US exports dropped by $27-$30 billion between mid-2018 and the end of 2019 The main commodities affected were soybean, sorghum and pork Farmers lost a very profitable market in China calculated at $24 billion During the 115th and 116th Congressional Hearings in 2018 and 2019 respectively, American soybean farmers testified to rising debts, increased costs of production and declining farm incomes in the industry In July 2019, a representative in the Committee on Small Business US Congressional Hearing discussed how the number of bankruptcies filed by farmers in 2018 was the highest in over a decade i Market disruptions Prior to the trade war, China stood as the largest importer of U.S soybeans, accounting for over 60% of U.S soybean exports The imposition of retaliatory tariffs by China resulted in a drastic reduction in its purchases of U.S soybeans This led to a sharp decline in U.S soybean exports to China Between the years 2014 and 2017, soybean farmers in the United States produced approximately $40 billion worth of soybeans annually, with around a quarter of that being exported to China However, in 2018 alone, U.S soybean exports to China fell from $12.3 billion, representing 63% of all U.S soy exports in 2017, to a mere $3.1 billion, which accounted for only 18% of U.S soy exports Specifically, during the periods of 20182019 and 2019-2020, the total soybean exports to China amounted to 15.7 million metric tons and 13.0 million metric tons, respectively These figures represent less than half of the average exports seen prior to 2018 (Figure 5).This sudden and significant decrease in exports created a massive disruption in the soybean market, leaving U.S soybean farmers grappling with excess supplies and limited avenues to sell their products Figure U.S Soybean exports to China The consequences of this disruption were twofold Firstly, the oversupply of soybeans in the U.S resulted in a downward pressure on prices With reduced demand from China, the surplus soybeans flooded the domestic market, leading to a decline in soybean prices Farmers faced the challenge of managing their inventory and selling their produce at lower prices, affecting their revenues and profitability Secondly, the disruption in the traditional export market forced farmers to seek alternative buyers While efforts were made to diversify export destinations and find new markets, the scale and speed of redirecting such a substantial quantity of soybeans proved to be a daunting task The sudden change in market dynamics required farmers to adjust their strategies and adapt to a new reality, resulting in uncertainties and additional costs The trade war-induced market disruption also had broader implications for the soybean industry and its stakeholders Soybean processors, who rely heavily on a steady supply of soybeans, had to reassess their sourcing strategies Some processors turned to alternative suppliers, such as Brazil and Argentina, to fulfill their soybean requirements This shift in sourcing patterns not only affected U.S soybean farmers but also altered global trade patterns and relationships in the soybean market Moreover, the sudden drop in U.S soybean exports had a ripple effect throughout the supply chain, impacting transportation companies, storage facilities, and other related industries dependent on soybean trade ii Price volatility The trade war had a profound impact on soybean farmers, leading to increased price volatility in the market Soybean prices experienced significant fluctuations, with a sharp decline of nearly 20% from mid-2018 to early 2019 (Figure 6) This decline was a result of disrupted trade flows and reduced demand due to the introduction of tariffs on U.S soybean exports to China The price volatility was especially evident during the harvest season, where soybean prices typically rise However, in 2018, the usual price pickup in October did not occur as anticipated Chinese tariffs on U.S soybeans prompted a deviation from the normal price dynamics, and China turned to alternative suppliers such as Brazil This shift in demand further contributed to the uncertain pricing environment faced by soybean farmers Figure International soybean price volatility The price volatility not only impacted farmers' profitability but also hindered their ability to plan and make informed decisions Uncertain pricing made it challenging to assess the profitability of operations and effectively manage financial resources It also complicated marketing strategies and risk management practices, making it harder for farmers to secure favorable contracts and mitigate price risks The trade war's impact on soybean prices was substantial For instance, in response to the trade tensions, soybean prices dropped to their lowest level in a decade in 2018, with futures prices falling below $8 per bushel This represented a significant decline from the peak prices of over $14 per bushel in 2012 The price decline directly affected farmers' incomes and financial stability iii U.S government package of aid programs In response to the trade war's impact on soybean farmers, the U.S government implemented a package of aid programs to provide support and assistance The aid package aimed to alleviate some of the financial burdens faced by farmers due to the decline in soybean exports and the subsequent drop in prices Under the aid package, the U.S Department of Agriculture (USDA) introduced the Market Facilitation Program (MFP) specifically targeted towards soybean farmers The MFP provided direct payments to farmers as a form of compensation for the losses incurred due to the trade war The payments were calculated based on a per-acre rate for soybean production In addition to the MFP, the USDA implemented other programs to support farmers These included the Agricultural Trade Promotion Program (ATP), which aimed to expand and diversify agricultural export markets The ATP provided funding for promotional activities and trade missions to help farmers explore new markets and increase their international competitiveness Furthermore, the USDA established the Food Purchase and Distribution Program (FPDP), which aimed to assist farmers by purchasing surplus agricultural products, including soybeans The purchased commodities were then distributed to various food assistance programs, such as schools and food banks, to address food security needs The Senate Committee on Agriculture, Nutrition, and Forestry issued a report on the management of payments to farmers for trade damages amid China's high tariffs on American soybeans and agricultural products The 2019 report highlighted that the aid package was poorly targeted, leading to significant inequities It noted that the funding predominantly went to farmers in the South, while the most affected regions in the North, Midwest, and West, which needed alternative export markets, received insufficient support This was confirmed by a review from Iowa State University, which revealed that some states received more aid than the profits they would have earned from selling the tariffed product The findings raised concerns about the fairness and effectiveness of the aid package, emphasizing the importance of aligning assistance programs with the regions and sectors most impacted by the trade war According to an estimation by Food Policy (UC Davis ARE PhD, University of Georgia professor Mike Adjemian, UC Davis undergraduate alumnus Wendi He), the results are similar to Iowa State University review Figure A-C show estimates of county-level trade war damages to the soybean producers, total MFP payments, and the ratio of MFP payment to trade war damages, respectively The figures illustrate the distribution of county-level damages and trade aid payments related to soybean production Grey counties indicate no observations, while darker shades of red represent increasing levels of the variables It is expected that areas with high soybean production, primarily located in the Midwest, would experience both damages from tariffs and receive trade aid payments Interestingly, many counties in Panel B show significantly larger Market Facilitation Program (MFP) payments compared to the damages indicated in Panel A Panel C quantifies this by calculating the ratio of payments to damages Notably, no county in Panel C displays a ratio between zero and one, indicating that in every case, county-level MFP payments were larger than the estimated local damages However, the degree of overcompensation varies across different locations on the map, with some areas exhibiting more intense levels of overcompensation than others Figure Trade War Damages and MFP Payments to U.S Soybean Producers at the County Level 2.4 Policy recommendations for improving U.S.-China soybean trade relationship a Policy recommendations for the United States i Escalation One potential policy option for the Biden Administration is to escalate the trade war with China This approach aims to put more pressure on China to reach an agreement by inflicting greater overall damage on the Chinese economy compared to the impact on the U.S The rationale behind this strategy is that the U.S is less reliant on its export sector and therefore less affected by the trade war Continuing the trade war between the United States and China could motivate China to seek an agreement, as the potential loss in Chinese GDP is higher than that of the United States The negative effects on China, including estimated revenue losses of $15 billion for Chinese firms, support the argument that escalating the trade war would force China to adapt quickly and potentially give the U.S an advantage in negotiations However, escalating tariffs on China would also harm the United States Past experiences have shown that when the U.S imposes tariffs, China responds with equivalent measures, affecting various sectors, including agriculture Retaliatory tariffs and reduced purchases led to a significant decline in U.S agricultural exports to China, causing job losses and financial difficulties for American farmers already grappling with the pandemic and unemployment ii De-escalation A possible alternative strategy for the United States is to pursue de-escalation in the trade war with China This approach would involve a gradual process rather than an immediate resolution, potentially through the implementation of a "stage two" agreement where both countries adhere more strongly to the commitments made during negotiations The de-escalation of the trade war offers several overarching benefits, including prioritizing the U.S domestic market and avoiding potential backlash from an escalation Over the past two decades, low inflation and consumer prices in the U.S have been maintained through imports from China Additionally, China's substantial foreign exchange reserves, largely invested in U.S government securities, have benefited the United States De-escalation also helps protect the U.S from potential negative consequences of increasing sanctions on China and allows for a diplomatic approach that aligns with Biden's multilateral goals By maintaining civil relations with China, there is a possibility of cooperation in areas where American and Chinese interests overlap, such as combating COVID-19 through coordinated vaccine distribution On the other hand, de-escalating the trade war initiated by the US would raise concerns about its credibility and morality regarding human rights abuses in China's Xinjiang region Imposing sanctions alongside allies reflects global condemnation While exploring mediation through institutions like the World Trade Organization is a potential pathway for negotiations, completely relaxing the trade war would undermine US credibility in promoting international norms and human rights b Policy recommendations for China Business Roundtable supports comprehensive reforms to promote a more open and fair Chinese market for foreign companies These reforms include increased market access, nondiscriminatory treatment, protection of intellectual property, curbing subsidies that distort competition, and facilitating trade in the digital economy i ● ● ● ii ● ● ● iii ● Enhance immediate market entry for U.S exporters and investors, guarantee fair competition, and reinforce the safeguarding of intellectual property rights Increase the availability of the Chinese market for American companies Guarantee fair and reciprocal treatment for companies from the United States Safeguard intellectual property of the United States from theft, coerced transfer, and infringement Take measures to reduce excessive production capacity, eliminate subsidies, and abolish policies that hinder fair competition Get rid of non-commercial assistance or subsidies that distort the market and artificially prop up industries such as aluminum, steel, agriculture, and MiC 2025 industries Put an end to domestic support that encourages excessive production within the country and contributes to global overcapacity Stop the misclassification of products and the practice of transshipment through intermediary countries to evade applicable trade duties Lift limitations on digital trade, enabling unrestricted data flow and eliminating the "secure and controllable" obligations Establish a presumption in which all types of data can be freely transferred across borders, unless there is a highly specific national security exception ● Not apply "secure and controllable" regulations and associated requirements (such as the Multi-Level Protection Scheme and cybersecurity inspections) to any commercial ICT products ● Remove the obligation to use or have computing facilities located within China as a mandatory requirement for conducting business in the country Conclusion To sum up, the soybean trade relationship between China and the USA has undergone significant changes and challenges during the trade war The imposition of tariffs by both countries put a profound impact on soybean exports, disrupting established trade patterns and resulting in economic repercussions for farmers and businesses in both nations China, previously the largest importer of US soybeans, cut down on its purchases and sought alternative suppliers to meet its demand This shift led to increased soybean imports from countries like Brazil, altering global trade dynamics US soybean farmers faced financial hardships as they lost a major market for their products Efforts to address the trade dispute resulted in the Phase One trade agreement, which provided some relief by resuming Chinese imports of US soybeans However, the long-term consequences of the trade war highlighted the vulnerability of agricultural trade to geopolitical tensions and the importance of diversification in global supply chains Moving forward, it is crucial for China and the USA to work towards a more stable and mutually beneficial trade relationship Both countries should strive to address trade disputes through constructive dialogue, while fostering an environment that supports fair and sustainable agricultural trade Such efforts will help mitigate the uncertainties faced by soybean producers and contribute to the stability of the global soybean market References Xijian, H.,2019 US-China Trade War and Soybean Trade between the Two Countries Retrieved from https://krex.k-state.edu/bitstream/handle/2097/40291/XijianHao2019.pdf? sequence=9&isAllowed=y Michael K Adjemian, Aaron Smith, Wendi He, 2021 Estimating the market effect of a trade war: The case of soybean tariffs Accessed at: https://files.asmith.ucdavis.edu/2021_FP_ASH_tradewar.pdf Paulson, N., Coppess, J., Schnitkey, G., Swanson, K., 2019 Mapping the Market Facilitation Program farmdoc daily (9):232 December 12th Accessed at: https://farmdocdaily.illinois.edu/2019/12/mapping-the-market-facilitation-program.html