China-USA Trade War: Plight of Midwestern Soybean Farmers
by: The Knowledge GroupApril 06, 2018
Early in April’s first week, the Trump administration published a new list of imports that could soon face 25% tariffs, affecting 1,300 Chinese items adding up to $50 billion in value, including machine and tech goods. U.S. stocks sank. Then, China struck back with a matching threat to tax $50 billion in goods from the U.S., including aircraft, cars, and soybeans.
Tariffs in retaliation for China’s infringement on intellectual property theft are legal under Section 301 of the U.S. Trade Act of 1974. The Act mandates a public comment period, and the full process would take several months. Meanwhile, there are signs that China is making moves to bolster compliance with intellectual property protections.
Yet on Thursday, April 5, Trump ramped up the pressure still further, asking for $100 billion in tariffs on Chinese imports.
The Soybean Incentive
Section 301 tariffs carry limited leverage, as the export economy of China is massive, and the U.S. represents just 3 percent of it. Ford, General Motors, and General Electric, stakeholders in sales and supply chains, want the tariff threat abandoned. Farming organizations also want an end to the tension. Their constituents rely heavily on China’s soybean demand.
Perhaps they sense that one unintended consequence of Trump’s pressure will be the increase in Chinese soybean production. China now has the motive to push itself into self-sufficiency. China’s government will doubtless insist on raising its farmers’ productivity, pointing to Trump’s pressure as reasons to increase Chinese agricultural output.
What Could Be Next?
While China complains to the World Trade Organization over the Trump tariffs, Trump could go so far as to pull out of the WTO. Should that occur, international business will feel the stress.
Perhaps the best approach for the U.S. administration would involve working with other nations that also have an interest in strong international IP protections.
In contrast, should the tit-for-tat continue, and should China and the U.S. move to clamp down on each other’s investments, expect serious economic disruption, including tech manufacturing site closures that could weaken both sides.
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