Trade wars cost U.S., China billions of dollars each in
2018
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[December 29, 2018]
By Michael Hirtzer and Tom Polansek
CHICAGO (Reuters) - The U.S.-China trade
war resulted in billions of dollars of losses for both sides in 2018,
hitting industries including autos, technology - and above all,
agriculture.
Broad pain from trade tariffs outlined by several economists shows that,
while specialized industries including U.S. soybean crushing benefited
from the dispute, it had an overall detrimental impact on both of the
world's two largest economies.
The losses may give U.S. President Donald Trump and his Chinese
counterpart, Xi Jinping, motivation to resolve their trade differences
before a March 2 deadline, although talks between the economic
superpowers could still devolve.
The U.S. and Chinese economies each lose about $2.9 billion annually due
to Beijing's tariffs on soybeans, corn, wheat and sorghum alone, said
Purdue University agricultural economist Wally Tyner.
Disrupted agricultural trade hurt both sides particularly hard because
China is the world's biggest soybean importer and last year relied on
the United States for $12 billion worth of the oilseed.
China has mostly been buying soy from Brazil since imposing a 25 percent
tariff on American soybeans in July in retaliation for U.S. tariffs on
Chinese goods. The surge in demand pushed Brazilian soy premiums to a
record over U.S. soy futures in Chicago, in an example of the trade war
reducing sales for U.S. exporters and raising costs for Chinese
importers.
"It’s something that's crying for a resolution," Tyner said. "It's a
lose-lose for both the United States and China."
Total U.S. agricultural export shipments to China for the first 10
months of 2018 fell by 42 percent from a year earlier to about $8.3
billion, according to the U.S. Department of Agriculture.
The most actively traded soybean futures contract averaged $8.75 per
bushel from July to December 2018, down from an average of $9.76 during
the same period a year earlier.
As of Dec. 28, futures in the last month of the year were averaging
$8.95-1/2 a bushel. That was down from $9.61-3/4 for all of December
last year.
To compensate suffering farmers, the U.S. government has allocated about
$11 billion to direct payments and buying agricultural goods for
government food programs, after consulting economists, including Tyner.
In North Dakota, which exports crops to China through ports in the
Pacific Northwest, soy farmers face at least $280 million in losses
because of Beijing's tariffs, said Mark Watne, president of the North
Dakota Farmers Union.
"You could almost put another $100 million on top of this because all
commodity prices are down and that affects North Dakota farmers
indirectly," Watne said.
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Shipping containers are seen at a port in Shanghai, China July 10,
2018. REUTERS/Aly Song
China's tariffs improved margins for U.S. soy crushers such as Archer Daniels
Midland Co <ADM.N> by leaving plentiful supplies of cheap soybeans on the
domestic market.
Chinese soybean mills, on the other hand, front-loaded soy purchases ahead of
the tariffs. This led to an oversupply that reduced Chinese processing margins
and led factories this summer to make the biggest cuts in years to the
production of soymeal used to feed livestock.
China resumed purchases of U.S. soybeans in early December following a trade
truce agreed to by leaders from the two countries during G20 summit in
Argentina. But Beijing kept its 25 percent tariffs on the oilseed from America,
which effectively curbed commercial Chinese buying.
"With the tariffs, the beans can't go into the commercial system," said a
manager at a major Chinese feed producer, speaking on condition of anonymity.
"The buying will have a very limited impact on the market."
China also suffered as products such as phone batteries were hit by U.S.
tariffs, and customers began looking to buy from other countries.
A study commissioned by the Consumer Technology Association showed U.S. tariffs
on imported Chinese products cost the technology industry an additional $1
billion per month.
The conflict also squeezed U.S. retail, manufacturing and construction companies
that had to pay more for metal and other goods.
"Input price pressures remained elevated in part due to tariffs, particularly in
manufacturing and construction, and firms were struggling to pass these higher
costs onto customers," the Dallas Federal Reserve said.
The Big Three Detroit automakers - General Motors, Ford and Fiat Chrysler
Automobiles – have each said higher tariff costs will result in a hit to profits
of about $1 billion this year.
The pain is ongoing, economists say: Ford and Fiat expect a similar hit in 2019.
(Reporting by Michael Hirtzer, Rajesh Kumar Singh and Tom Polansek in Chicago,
Ann Saphir in San Francisco, Humeyra Pamuk and David Lawder in Washington, Ben
Klayman in Detroit and Hallie Gu in Beijing. Editing by P.J. Huffstutter and
Jonathan Oatis)
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