China’s New Threat Against Trump Has Some U.S. Farmers Nervous

In recent years, the annual meeting of the U.S. soybean export group has been a celebratory affair complete with a grand signing ceremony during which attendees committed to exporting billions of dollars of U.S. soybeans to China.

But following months of escalating trade tensions Chinese attendees at this year’s confab in Kansas City last week carried a different message: China doesn’t need U.S. soybeans.

In a keynote presentation, a leading official from China’s grain sector laid out how the country not only can buy soybeans elsewhere but can also switch to entirely different types of crops to supply its livestock and feed its population. Such a move would undercut global demand for soybeans and prevent the U.S. from simply turning to other countries.

“If the trade tensions cannot be resolved quickly, the decrease in purchasing volumes of American soybeans will continue,” said Mu Yan Kui, an executive at the Yihai Kerry Group, a Chinese grain company, and vice chairman of China National Association of Grain Economy. “Many people have underestimated the Chinese people.”

China, which bought more than 60% of U.S. soybean in the 2016-2017 sales year largely to feed its stocks of livestock, has already begun to look to new places like Brazil as a source of the product. That’s no surprise to U.S. farmers who have long understood Trump’s trade agenda would hurt in the short term, but U.S. exporters thought they would be able to stem the tide by developing new markets. If China buys more soybeans from Brazil, other Brazilian customers in Europe and Asia would turn to the U.S. Or so the farmers thought.

The plan laid out by Mu would undercut that shift to the detriment of U.S. farmers. In excruciating detail, Mu listed palm mill, rapeseed, sunflower seed and other crops among those alternatives. And he pointed to Russia, Ukraine and Kazakhstan as places where China would look to work with farmers to develop new crop sources and improve yields.

“The United States is going to become the warehouse for global soybean supplies,” says Paul Burke, regional director for North Asia at the U.S. Soybean Export Council. “This is the realization that we’re coming to within the trade within the last couple of weeks.”’

That’s damaging for the U.S. industry in the short term, but industry insiders say that the effect could last far longer than the next season if the Chinese develop new relationships and come to view the U.S. as an unreliable trade partner. “As a farmer you fear that the Administration may not understand that,” says Monte Peterson, a North Dakota soybean farmer who serves on the board of directors at the American Soybean Association.

Whether China will actually make good on the threat to soybean farmers remains to be seen. The country has expanded its capacity to process soybeans and abandoning those efforts would be costly. The Trump Administration has gambled that the current strength of the U.S. economy will allow the country to outlast China in the ongoing trade disputes. Meanwhile, economic growth in China has slowed in recent years and remains tenuous.

Nonetheless China’s response to soybeans underscores the dangers for the U.S. of a trade war between the world’s two largest economies. The highly coordinated nature of the country’s economy and agricultural sector leave little doubt that the country could deploy a destructive response if it chose to do so. In his presentation, Mu argued that the trade war would lead to a depreciation of the value American farmland and a “devastating impact” on farmers while leaving China in the clear.

“It has a very small impact on China,” Mu said of the any damage the soybean processing industry feels.

And, while China recently opened the door for Xi Jinping to remain its leader for life, elected officials in the U.S. face regular elections and potential blowback when policies go awry. Trump’s trade agenda is already broadly unpopular with a majority of Americans saying free trade is a “good thing,” according to a May Pew Research poll. This fall’s midterm elections will prove a crucial test of those policies.

The most affected elements of Trump’s base — like heartland farmers — have shown a willingness to stick with the president while he pushes for renegotiated trade deals and an end to unfair trade practices in places like China. Trump’s announcement last week that he had reached a deal with Mexico to replace NAFTA with an improved deal provided a burst of confidence to many here on the ground that the Trump administration can conclude trade discussions with China and the European Union in the coming months. But many question whether the patience will last into the next growing season when the scale of the damage becomes clear.

“Rural America has supported the president and continues to overall,” says Ray Gaesser, a corn and soybean farmer in Corning, Iowa. “As you have more and more financial pressure, that might change.”