US-China trade tensions, respective policy responses, geopolitics, and climate shocks will continue to reshape the global food system. As the largest and most concentrated segment of global agricultural trade, soybeans provide clear evidence for this: the beans and their byproducts account for more than 10 percent of the total value of the global agriculture trade. The trade war has influenced American farmers’ planting decisions and led to a sharp decline in US soybean exports and significant change in global soybean trade patterns and stock holding.
The United States is the second largest producer of soybeans globally. Together, Brazil (the largest producer) and the United States represent more than two-thirds of global soybean production. In the last ten years, market opportunities for soybeans have skyrocketed, prompting Brazil and United States soybean production to increase by more than 34 percent and 31 percent respectively. The two countries are also the largest soybean exporters globally. China is the largest soybean importer in the world, buying approximately 60 percent of the world´s total soybean exports.
China is the United States’s largest agricultural export market and soybeans are a critical segment of US-China trade. Prior to the 2018 trade war, US soybean exports to China had grown much faster than the United States’s overall global exports, reaching $1 billion in 2000, and $14 billion in 2016 —representing 62 percent of all US soybean exports that year. After President Donald Trump took office in 2017, trade tensions accelerated. US soybean exports to China began to fall and, in 2018, as trade tensions escalated into a full-scale trade war, exports fell sharply to $3.1 billion (18 percent of US soy exports) from $12.3 billion (63 percent of US soy exports) in 2017.
China turned to Brazil, the largest soybean exporter to China, to replace America’s supply. Soybean planting areas in the United States dropped to 76.1 million acres in 2019, a 15.5 percent reduction from 2017 and 2018. With no imports in November 2018, China’s imports of US soybeans resumed partially after the temporary agreement between the two countries signed on December 1, 2018 at the G20 Summit in Buenos Aires, Argentina. At that meeting, China agreed to buy agricultural and energy products from US farmers. Despite these claims, the countries failed to finalize the negotiations within the designated time (90 days). As a result, on May 10, 2019, the United States increased tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent.
The US tariffs aimed to protect American companies, but the outcomes were not positive as expected. US exports are estimated to have declined by $32 billion, costing industries some $2.4 billion per month in lost exports. As a result, companies had to pay lower profit margins, cut wages and jobs, and increase prices.
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. These Congressional discussions on the economic downturns paved the way for the Family Farmer Relief Act, passed into law on August 23, 2019; the Family Farmer Relief Act gives family farmers greater protection in bankruptcy proceedings.
On January 15, 2020, the United States and China signed another agreement designed to improve the trade environment. Under the agreement, China committed to purchasing $200 billion worth of goods and services from the United States from 2020-2021. Specifically for agricultural and related products, China committed to an additional 12.5 billion purchases from the United States in 2020 over 2017 levels and an additional 19.5 billion in 2021 over 2017 levels. By December 2021, however, China had purchased products that represented 59 percent of the commitment excluding the extra $200 billion of US exports. China progressed more with agricultural purchases: China’s purchase represented 83 percent of the Phase One commitment.
Despite these commitments, China did not purchase American goods and services as agreed. The trade war also did not generate benefits for US industries. Policy interventions were, and are, still necessary to improve the trade environment between the two countries.
Policy interventions to political decisions
The US-China trade war and weaponization of soybean trade impacted both countries’ economies negatively. Policy responses in China included increasing domestic soybean production, diversifying imports, reducing total demand for soybean (such as by lowering soybean meal content in animal feed), increasing poultry production, communicating to the population the benefits of eating more poultry and fish rather than pork, and promoting the production of soybean in third countries. The effectiveness of these measures, however, was insufficient to cover the United States’ previous soybean supply.
From a political viewpoint, agriculture is said to have been the most important part of the trade agenda for the Trump Administration. So much so, that in 2018 and 2019, the government awarded federal subsidies such as the Market Facilitation Program (MFP), the Food Purchase and Distribution Program, and the Agricultural Trade Promotion Program to the farmers. There were many critical voices in the US regarding the trade war and the negative impacts it had in the economy of the country (estimated at more than $300 billion) — predominantly from industries that lost at least $1.7 trillion in the price of their stocks and the hundreds of thousands of jobs lost in addition to the many farmers’ rising debts, increased costs of production, declining farm incomes and bankruptcies.
Amid China’s high tariffs on American soybean and other agricultural products, the Senate Committee on Agriculture, Nutrition, and Forestry issued a report on the management of payments to Farmers for Trade Damages. The 2019 report noted that the payments under the aid package were poorly targeted, creating deep inequities. Regarding soybeans, the report noted that the aid package was not aligned to help the most affected regions in the North, Midwest, and West, which needed alternative markets for export — as most of the funding went to farmers in the South. This was confirmed by an Iowa State University review that discussed how some states (including Iowa) were receiving more MFP aid than they would have received in profits from selling the tariffed product.
The impacts of the trade war on the US agricultural industry were numerous and they could affect future production, resulting in increased food prices even at present. This would worsen the already concerning situation due to the Ukrainian invasion by Russia.
An uncertain outlook
The world faces a global food crisis of unprecedented proportions. Record-high food prices have driven millions more into extreme poverty, magnifying hunger and malnutrition. The COVID-19 pandemic, armed conflicts such as the Russian-Ukraine War, climate shocks and export interventions have made global food supply increasingly unstable and unreliable—posing major threats to food security of agricultural importers. As the largest food importer, China, though relatively much less affected by the price volatility in global food supply, has become increasingly concerned with its dependence on global trade for food supplies, especially US soybean dependence. From the point of view of the US, relying on a single market that is so vast and with whom there are so many differences, is of concern.
The US-China Phase One Deal expired at the end of 2021. To date, however, neither the United States nor China has lifted war-trade barriers. With no new trade deal in sight, trade tensions between the two countries remain high. Under President Biden, what began as a trade war has, arguably, increasingly evolved into a new cold war. Worse still, with tensions soaring over Taiwan after US House of Representatives Speaker Nancy Pelosi’s visit in August 2022 and President Biden’s repeated comments that the United States would defend Taiwan militarily, the possibility of a “hot war” between nuclear powers has been on the rise.
Uncertain in global food supply and with its deteriorating bilateral relations with the United States, China has raised the importance of food security even further. Reducing its soybean dependence has become a priority for the country.
On the one hand, China will continue to implement efforts such as import diversification, boosting domestic production and lowering soybean meal content in animal feed. Official reports suggest that some of the measures have achieved notable success. For instance, in mid-September 2022, China’s the Ministry of Agriculture and Rural Affairs announced that the country’s soybean meal reduction and substitution plan has achieved significant results: In 2021, the share of soybean meal in the feed industry dropped to 15.3 percent, down by 2.5 percentage points from 2017. This is equivalent to saving 11 million tons of soybean meal, and 14 million tons of soybeans.
On the other hand, China has also begun to explore new approaches. After years of delay, China has recently accelerated the commercial planting of genetically modified (GM) soybeans. In June 2022, the Chinese National Crop Variety Approval Committee released the standard that cleared the path for cultivating genetically modified soybeans in the country—outlined in the country’s 14th Five Year Plan for Crop Farming. Beijing has similarly promoted the development of alternative proteins. On March 6, 2022, Chinese President Xi Jinping emphasized food security concerns during the 2022 annual Two Sessions by encouraging agriculture officials to seek protein sources outside of the traditional livestock industries to safeguard China’s food supply. Chinese researchers reported in 2021 that they successfully synthesized protein from carbon monoxide might lessen the country’s reliance on imported soybeans. In the short term, however, these measures are unlikely to generate notable effects on China’s soybean self-sufficiency as developing and adopting new agricultural technologies has always been a slow process. Nevertheless, the long-term impacts of these measures should not be overlooked given the strong policy focus from the central government and the critical role China plays in global soybean trade.
At present, the US soybean market is responding to lower demand by China, resulting in lower exports and a fast-growing Biodiesel and Renewable Fuels global market that relies on soybean. This demand is unlikely to offset sufficiently the lower demand by China. In addition, the expected record harvest and exports in Brazil in early 2023 are likely to leave the US with a lower share of global trade next year.
Meanwhile, amid the ongoing global food crisis, the United States has not only criticized China’s stockpiling efforts but also became worried that China’s agricultural investment in the United States could pose a national security risk to the country. According to the report by the US-China Economic and Security Review Commission, China’s agricultural investment in the US presents several risks to US economic and national security: namely, reducing China’s needs for American farm products, gaining leverage over US supply chains, eroding America’s competitiveness by gaining access to US agricultural IP, and creating bioweapons using genetically modified crops.
If the global food crisis is a priority for the US, it will have to rethink the use of vegetable oil, including soybean oil, or so-called “renewable diesel” by the energy industry.
It is not only the national priorities and the disagreements between countries that will impact production or exports of soybean or agricultural products in general. It is a myriad of other situations under which the US, the Chinese governments, the markets, or much less the farmers, have any control but to which they must respond. They include impacts of climate change such as floods and droughts, black swans such as the impacts COVID-19, port closures, or events such as the Russian invasion of Ukraine and its many spillovers.
Governments are forced by uncertainties multiplying all over the world to continuously fine-tune policies and management decisions to respond efficiently. Too much is at stake: from national economies to industry growth or to livelihoods of small and large-scale farmers.
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Professor Cecilia Tortajada is a Professor in Practice on Environmental Innovation at the School of Interdisciplinary Studies, University of Glasgow, U.K. She is co-author of Agricultural Trade: Impacts on Food Security, Groundwater and Energy Use (Current Opinion in Environmental Science & Health, 2022, with Prof. Francisco González-Gómez) When food meets BRI: China’s Emerging Food Silk Road (Global Food Security Food Security, 2021, with Dr Hongzhou Zhang), and COVID-19: Impacts and Resilience in Singapore (Frontiers in Sustainable Food Systems, 2021, with Ms. Nicole Sher Wen Lim).
Dr. Hongzhou Zhang is a Research Fellow with the China Programme at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore. He is the author/editor of three books, including “Securing the ‘Rice Bowl’: China and Global Food Security” (Palgrave, 2018), “China and Transboundary Water Politics in Asia” (Routledge, 2017, with Dr. Li Mingjiang) and “China’s Global Quest for Resources: Energy, Food and Water” (Routledge, 2016, with Dr Wu Fengshi). He has also published peer-reviewed articles such as When food meets BRI: China’s Emerging Food Silk Road (Global Food Security Food Security, 2021, with Prof. Cecilia Tortajada).
Image Credit: Preston Keres (USDA), CC0 Public Domain
