China retaliated against US tariffs on July 6, with its own 25% tariffs on imports of US food products, agricultural commodities and motor cars. It has drawn up a second list that targets $16 billion of US energy commodities, chemicals and medical equipment.
No date for the additional tariffs has been set, but it could happen as early as two weeks’ time. But not all commodities are traded equally, and some tariffs will hurt a lot more than others.
The chart shows the value and annual export growth of US commodities that will be subject to Beijing’s tariffs. By way of comparison it also shows LNG, which is off the table for now. The size of the bubble in the chart represents the value of the commodity exported from the US to China last year in billion dollar terms.
The cash cow is soybeans. Last year, US shipments to China were worth nearly three times the value of crude oil. They were even worth more than the value of motor vehicle exports. Despite all the hype, LNG exports were worth just 3% of soybean exports to China. But like all cash cows, soybeans have seen little growth. In fact, the value of soybean exports actually declined in 2017 due to lower prices.
The rising star is of course crude oil, which grew over 1000% in 2017 from the previous year.
This is partly due to higher prices, but mainly due to rising export volumes as a result of increased shale production. Other energy commodities like LNG and LPG are, to mix metaphors, riding on the coattails of the shale bandwagon, but the growth rate and absolute value of these products is dwarfed by the value of US crude oil exported to China.
But how does crude compare with soybeans?
China took just under 20% of US of crude oil exports last year. This pales in comparison to soybeans, where China accounted for 57% of all exports last year.
John Paul Getty’s famous adage that “if you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem” could equally apply to the US-China soybean trade. It’s so huge that China will have little option than to continue to import US soybeans, albeit in smaller quantities.
The soybean tariffs will not only be a problem for the US, but also for China.
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