China doesn’t need US soybeans, thanks to Richard Nixon
President Donald Trump is upset with China for buying Brazilian soybeans instead of American ones amid the ongoing trade war, but the South American industry got its start thanks to an earlier round of protectionist policies under President Richard Nixon.
Nixon temporarily froze the prices of consumer goods and restricted exports of food in 1973 in response to rising inflation, a move that essentially cut off exports of US soybeans. It worked, creating a surplus and lowering prices for American consumers.
But the embargo — which lasted for just three months — prompted Brazil to step up its supply, particularly to Japan, creating a formidable competitor on the world agricultural stage and leaving a lasting impact on the American soybean industry.
“It inspired the Japanese to go look for somebody else and, basically, that action created the Brazilian soybean industry,” said Andrew Novaković, a professor of agricultural economics at Cornell University.
Brazil nearly tripled its soybean production over the next decade, and growth continued as Japan made financial investments to help turn Brazil’s wooded grasslands into a suitable place to grow soybeans — a move that also accelerated deforestation in the country.
Now Brazil is the second biggest soybean producer in the world, and it’s where China’s farmers have been getting a lot of their soybeans since Beijing imposed retaliatory tariffs on US agriculture.
Last year was an “extraordinary one for Brazilian soybean producers,” according to a recent report from the US Department of Agriculture. Demand from China grow by more than 20%.
Before Beijing targeted US-grown agricultural products with tariffs, China was the biggest market for American soybean growers. Some US farmers, who have been some of those hardest hit by the trade war, are worried they won’t ever get the Chinese market back.
“I don’t think, from an agricultural perspective, that we’ll be a primary supplier to China again,” said Grant Kimberley, who grows soybeans and corn in Iowa and is the director of market development at the Iowa Soybean Association.
“I think the Chinese are pouring money into South America right now,” he added.
Brazil can’t meet all the soybean demand in China, which typically buys a majority of the world’s production. But Argentina, India and Russia could be other options if relations with the US don’t improve.
Beijing essentially stopped buying soybeans from the United States last year. Heading into the spring planting season, farmers had a record number of soybeans in storage. Earlier this year, long-term forecasts from the Department of Agriculture projected that the American soybean export market won’t recover to 2017 levels until 2024.
Farmers are important to Trump’s base, and the President has shielded them with a $28 billion aid package designed to blunt the impact of the trade war.
“Our great American Farmers know that China will not be able to hurt them in that their President has stood with them and done what no other president would do – And I’ll do it again next year if necessary!” Trump tweeted last week.
At a recent event with farmers in Minnesota, Agriculture Secretary Sonny Perdue said American soybean farmers have been too reliant on the Chinese customers and also argued that China will buy from wherever it sees is the best value, after the trade deal is reached.
“I think we’ll gain the market back. But it’s got to be a fair, reciprocal and free trade environment, not allowing China to cheat,” Perdue said.
But Beijing has been slow to restart any agricultural purchases as negotiations continue, pushing Trump to threaten new tariffs on $300 billion in Chinese goods. Last week, Beijing halted any purchases in response to Trump’s new threat.
Farmers said they don’t think things will go back to normal anytime soon.
“I wouldn’t be surprised if this lasts until after the election,” said Kimberley. “This may be the new normal for the next decade.”