Much Ado About Soybeans

 

This week is Good Friday for us Orthodox Christian folk, which is a day of preparation and reflection, a time to think. And today, my friends, I’m thinking about a trade war with China. I think Jesus would have been pro-free trade, loving your neighbor and all that. Just a thought.

It all started on March 8th when Trump announced the steel and aluminum tariffs. The prologue is the rhetoric about protectionism and trade wars being short and easy to win in the 2016 election and some minor penalties on Chinese solar panels in January. The sequence of events is a little convoluted and the news was coming hot and fast this week, so let’s get a quick timeline: 

March 22: Trump announces $60bn in tariffs
March 23: China announces $3bn in tariffs on nuts and fruit and wine and pork
April 2: China’s $3bn go into effect
April 3: Trump’s tariffs revised down and formalized at $50bn
April 4: China responds by expanding tariffs to include soybeans
April 5: Trump announces $100bn in new tariffs

Let’s clarify what a couple of those things mean. When I say Trump announced $60 billion in tariffs, I mean that he asked his US Trade Representative, a guy named Robert Lighthizer, to consider and come up with a plan to impose a tax on $60 billion of Chinese goods. Lighthizer did his homework, and came up with the specific goods that would be taxed on import, the total value of which came out to be about $50bn. 

So the way the process goes in the US, the President asks the US Trade Rep to investigate a certain aspect of trade with a given country under various US laws – in this case, Section 301 of the Trade Act of 1974, which covers intellectual property rights. The USTR investigates and reports on the damage. The president then asks the USTR to consider a response, in this case $60bn in tariffs, and the USTR comes up with the specifics of how to make it happen. The 301 investigation started all the way back in the fall, so this has been a real slow burn that heated up real quick. 

So what’s the deal? Why is China’s response so... meh? And what’s the deal with soybeans? Who cares about pork? Well, it turns out Trump might. Where, dear reader, do we grow soybeans and farm pigs? The rural Midwest. Trump country. Want to know the biggest producer of soybeans? Iowa. Conveniently, the same Iowa that kicks off the electoral season for the presidential election with its Caucus every 4 years. The Chinese know this, and are deliberately targeting Trump’s base to apply precise pressure, because they don’t want a giant trade war either, though they’ve pledged to fight to the end. Don’t believe me and think it’s probably a coincidence? Check this WaPo graphic and article, with red circles representing areas affected by the tariffs that voted Trump in 2016. 

Courtesy of The Washington Post

Courtesy of The Washington Post


The stock market had a tough couple weeks on the back of this news, compounded by shaken confidence in tech, with 700 point drops, though it’s since recovered on the hope that all the tough rhetoric might come to naught as the two sides prepare to negotiate. It was an overreaction, but you still might want to check your 401k. Economists say the effect on the economy is unlikely to be huge, and nothing like the losses we saw in the stock market, but it won’t be trivial either. 
So as we move into the next phase of this trade war, we must ask ourselves: #wwjd? I think he would just multiply all the soybeans and then we’d have enough for everybody. 

It was a weak tie-in. Sue me. #fpf