Unexpectedly Intriguing!
November 7, 2018

On 22 March 2018, President Trump initiated a trade war by imposing tariffs on goods the U.S. imports from China. Almost immediately, China retaliated by imposing its own list of tariffs on goods that it imports from the United States.

In the months since, there have been additional rounds of tit-for-tariffs imposed by both nations on each other's goods. As for their impact, we can see little effect on the U.S., which has seen an increase it the year over year growth rate in the value of its imports from China, while the exchange-rate adjusted growth rate of the value of U.S. exports to China have clearly fallen.

Year Over Year Growth Rate of Exchange Rate Adjusted U.S.-China Trade in Goods and Services, January 1986 - September 2018

In the absence of tariffs, we would consider the negative growth rate of U.S. exports to China as evidence of a significant deterioration in the health of China's economy. And there is certainly independent evidence to support that observation, but the evidence is not as clear as it could be because of the specific actions China has taken in retaliation against the U.S.

Those actions were largely directed against two of the U.S.' principal exports to China: soybeans and crude oil. We decided to take a closer look at each to see what the impact of each action has been to the U.S.

Starting with soybeans, we've estimated the number of bushels that the U.S. has exported to China in each month from January 2012 to the present, and also what the U.S. has exported to the rest of the world, since the U.S. grows far more soybeans than it consumes domestically - the excess would have to go somewhere, or else risk becoming spoiled while in prolonged storage if they cannot be sold.

Monthly U.S. Soybean Exports to China and the Rest of the World, January 2012 through September 2018

Soybeans are, by far and away, the United States' largest single export product to China, which are primarily used as animal feed to support China's hog production. In this chart, we can see that China has severely reduced the number of soybeans that it acquires from the U.S. since the trade war began earlier in 2018, while exports to the rest of the world has only made up about a third of the U.S.' typical level of exports in recent years.

To do that, China has boosted the amount of soybeans that it imports from Brazil, the world's largest producer of soybeans and has also begun to substitute other crops for U.S. soybeans to make up the difference. More remarkably, China's leaders have also chosen to reverse an initiative to improve the quality of soybeans that it imports and will now accept diminished quality in the soybeans they acquire, which may negatively impact the quality of its hog production.

The result of all that is that U.S. soybean producers have been considerably disadvantaged by China's trade war tactic, where many will receive a federal bailout as compensation for their losses. The full cost of that bailout for U.S. taxpayers has yet to be determined.

Meanwhile, the volume of U.S. crude oil exports tells a very different story, as shown in the following chart showing the estimated number of barrels of crude oil exported by the U.S. in each month since the U.S. Congress lifted its ban on crude oil exports in mid-December 2015.

Monthly Barrels of U.S. Crude Oil Exports to China and the Rest of the World, January 2016 through September 2018

Unlike soybeans, U.S. oil producers have been able to find other buyers around the world to make up for China's retaliatory step to stop importing crude oil produced in the U.S., where China's effort to target U.S. oil producers appears to have missed the mark.

Overall, it would appear that China has been more affected in the trade war than has the U.S., where the negative impact to that nation's economy has been felt more broadly to date than what has been experienced in the U.S. economy. How long that might continue is an open question, where it would be in the best interest of all parties to reach a deal sooner rather than later.


Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 5 November 2018.

U.S. Federal Reserve. ALFRED Spot Crude Oil Price: West Texas Intermediate (WTI). Accessed 5 November 2018.

U.S. Census Bureau. Trade in Goods with China. Accessed 5 November 2018.

U.S. Census Bureau. U.S. Trade Online. Accessed 5 November 2018.  


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