US–China Trade: Sell US Soybeans—and Get Played

.

I have a bad feeling about the U.S.–China trade negotiations. One gets the impression President Donald Trump is so keen for a deal that he’s walking into trouble.

But I’ll bet Beijing eventually “concedes” on soybeans and agrees to buy a lot of American ones.

One trade expert told me: “I am reasonably confident that—thanks to that other export to us, Salt Typhoon (PRC government-backed hackers)—the Chinese knew the administration would make this ‘demand’; Beijing might have even ‘incepted’ the idea and then spun up the soybean industry to lobby for it.”

Chinese trade warfare has indeed successfully influenced U.S. soy farmers, making them totally dependent on China.

The Chinese Communist Party (CCP) wants to convert that sense of dependence into farmers appealing and lobbying Washington to keep the soy trade lines open and free of interference, because it is their “lifeline.” And they are, after all, voters who can make a difference in who sits in Washington.

A recent letter from the American Soybean Association to Trump suggests the Chinese strategy of “pressure by local proxies” is working. The letter notes: “U.S. soybean farmers cannot survive a prolonged trade dispute with our largest customer … Mr. President, you have strongly supported farmers and farmers have strongly supported you. We need your help.”

One marvels at U.S. soybean farmers’ total ignorance of the customer. Who would be foolish enough to make China their chief customer? Apparently, most U.S. businesses and industry, if the last 40 years are anything to go by.

So suppose China agrees to buy more soybeans from the United States.

If you see the world in bilateral trade deficits and surpluses, “making” the People’s Republic of China buy more soybeans looks like winning. And it is, possibly for Archer Daniels Midland, Bunge, Cargill, and COSCO, which will ship the beans and maybe do a little intelligence collection in the Port of Long Beach while loading.

Trump can claim victory, and in exchange, he goes easy on China on something else—say, relaxing export controls on chips and technology, and imposing a 20 percent fentanyl tariff—that only hurts the Chinese from the pain of pinching themselves to keep from laughing.

But even better from Beijing’s own “art of the deal” perspective is that China takes the American soybeans and transforms them—in China or a third country—into products like pharmaceuticals, cosmetics, adhesives, supplements, printer ink, and many others. It exports these back to us in a higher value-added form, and earns a ton of foreign exchange—much more than the amount it paid for the “raw” soybeans.

And keep in mind that soybeans are commodities. Why do we think those U.S. soybeans will stay in China? Perhaps they will be used as food aid to a country where the CCP aims to expand its influence, or they might be traded for something else it desires?

I don’t begrudge U.S. soybean farmers profiting from increased demand for their crops and others the fun of speculating on soybean prices. But the trade deficit is not our biggest problem. I prefer to withhold products from China and sell like crazy elsewhere to reduce our dependence on it as a market.

Beijing’s current stranglehold over the Trump administration via America’s self-inflicted “rare earth” dependency alone ought to be alarming enough to prompt a change in behavior. So if China’s agreement to buy U.S. soybeans is touted as a success, maybe it’s instead evidence of a game we are losing.