What is the impact of the retaliatory tariffs by China on the soybean industry?


I have done research on this matter and I have come to the conclusion that the retaliatory tariff had many effects on business confidence that significantly dropped before and after the implementation of the tariff due to created uncertainty and expectations of a bearish market, the decreased in the returns per acre in Iowa that caused a decreased incentive for the industry to grow its production which decreased in the short term and a decrease in overall demand from China that wasn't substitutable from both the domestic and foreign markets meant that there was an oversupply that decreased the commodity price that decreased the profit margins and the valuation of the industry while new equilibrium meant that a contraction in the market was in order to stabilize the price. These are results of the impacts I have gathered yet additional perspectives on microeconomics are needed in my opinion and any assessments of these results are highly appreciated. Additionally, I believe that the trade war affected smaller businesses more than it did bigger farms and corporations yet I do not know any empirical way to prove this and analyze it economically in which I am not certain if the trade war caused the concentration of the soybean industry into mega-farms and additionally, to what extent were the subsidies granted by the US government under the MFP effective? I do believe that they were effective in increasing the income of many farmers but I do believe certain parts of the subsidies simply went into the capital of farmers without any real contributions.


There is a lot in this question to digest:  the trade war, impacts by farm size, and the effectiveness of government support.  For the soybean market, the U.S.-China trade dispute did have a significant impact.  Roughly half of U.S. soybean production is exported, and of that, China represented approximately 60% of the export total before the clash.  The trade fight spans two soybean marketing years, 2018 and 2019 (for soybeans, the 2018 marketing year covered 9/1/2018 to 8/31/2019, think of it as the year during which the soybean crop harvested in 2018 was marketed).  Soybean exports had been setting records prior to the conflict, reaching a peak of 2.167 billion bushels in 2016.  During the dispute, export levels fell by roughly 20% in 2018 (compared to the 2016 peak) and 25% in 2019.  Soybean acreage did decline for 2019 by 15% (2018 acreage was mostly planted before the dispute), but that decline can be linked to several factors, with the major ones being the trade fight and extremely poor planting conditions (in 2019, the U.S. saw significant acreage prevented from planting due to wet conditions).  Roughly half of that soybean acreage loss returned to the market in 2020 (another year where rains delayed planting). 

It is also worth noting that the trade war accelerated the Chinese diversification away from US products, that happened even before the trade war. Table 1 on page 16 of this article shows that the trade war caused noticeable erosion of US market shares for soybean and other products such as pork even with the life from the US-China phase one deal https://www.card.iastate.edu/products/publications/pdf/.pdf

The reduced acreage and planting problems in 2019 led to a much smaller soybean crop, which softened the impact of the trade fight.  The federal government set up the Market Facilitation Payments (MFP) in a couple of different ways (there were a few rounds of payments) to target support to farms more directly impacted by the trade fight.  And while "effectiveness" is in the eye of the beholder, USDA did adjust their payment formulas based on the products they estimated were most impacted.  There were payment limits imposed on the MFPs to limit the size of the payments to large farms/farmers. Our research shows that financially  the MFP payments compensated and in many cases over-compensated the ag sector's loss, but the payments across the states are uneven https://www.card.iastate.edu/ag_policy_review/article/?a=103. It is also worth noting that the MFP payments along with the farmers' mentality for short-term-pain, long-term gain, helped explain the majority support by farmers of President Trump's trade policy even though the retaliatory tariffs clearly hurt farmers financially https://theconversation.com/3-reasons-midwest-farmers-hurt-by-the-u-s-china-trade-war-still-support-trump-126303

The consolidation of farms has been a long-run trend within agriculture, so the MFPs did not start the trend.  By the time the 2020 soybean crop was planted, the Phase 1 trade bill had been signed and Chinese imports of U.S. soybeans rebounded back to near pre-trade war levels, with total exports reaching a new record of 2.266 billion bushels.  The rebound in exports accompanied higher soybean prices (starting a price trend higher than continued into 2022).


Answered by
Guest Answered by
Last updated on
September 26, 2022

Explore Our Programs

Interested in more answers or studying in the Department of Economics?