Soybeans

China has matched the U.S.'s intended $50 billion of tariffs causing a trade-war panic in the financial markets (see the featured posting on the left). The two key products threatened by China are airplanes (Boeing) and soybeans ... see: CNBC Article to understand the hysteria that gripped the stock market early yesterday. So, are China's tariff threats to be taken seriously?

Let's start with Boeing. The purchaser of airplanes in China is the government itself ... so there is little pain for them to take money from one pocket and put it in another. And secondly, "if it ain't Boeing, I ain't going" means that China would be very reluctant to lose its place in line for plane deliveries given the tightness of this marketplace. Conclusion: an empty threat.

Next soybeans ... here are some key soybean send soybeans meal statistics: USDA Soybean Stats. Note three things from this data: 1) over the last five years soybean prices have been falling precipitously, 2) allocated acreage and total production have been growing (the likely cause of falling prices) and  3) China is by far the largest buyer of US soybeans (9x the next biggest). So clearly US soybean farmers have a lot at stake if their Chinese market dries up.  However, so do the Chinese who use the soybean meal to fatten its huge population of pigs ... and much of the soybeans themselves for human consumption. A 25% tariff on U.S. soybeans would be a tax on Chinese consumers.

The 64K yuan  question is: Could the rest of the soybean growing world (primarily Argentina and Brazil ... see: Exports by Countries) ... pick up the slack from any falling U.S. exports.? Possibly, but because of a drought in Argentina, world supplies of soybeans and soybean meal are back in short supply. Resides this is harvest time in South America ... meaning the US. Has most of the high cards, at least for a year, in this poker game.

Overall conclusion: the Trump administration might well call China's bluff in this dueling tariffs contest ... particularly if we are willing to compensate any damaged industries.

Afterward: Many pundits feel that China, because it is central-planned capitalism, would have a natural advantage in a trade war. Maybe so. However, market-driven capitalism like the U.S. iterates to the best solution ... which takes longer and can be more painful than China's. However, if China gets it wrong to start, there is very little market self-correction ... which can be disastrous.