China-US trade friction: Are soybeans China’s trump card?

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China announced a 25-percent tariff on critical US exports on Wednesday. Part of this list are soybeans – an export that's been widely considered one of the most powerful retaliatory tools.

So are soybeans the trump card for China?

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Why do soybeans matter so much?

China is the world’s top soybean importer, buying some 100 million tons every year, almost two-thirds of the global trade, with the US and Brazil being the top two suppliers.

China has been the largest buyer of US soybeans. In the past couple of years, around 60 percent of US soybean exports have come to China.

For example, in 2017, China bought 33 million tons of beans from the US – 62 percent of its total exports and accounting for 11 percent of the total US export value to China.

What are the consequences of tariffs on US soybeans?

Currently, the soybean trade is relatively unrestricted by tariffs or other border measures. But things will be much different if China were to retaliate.

According to a report by the US Soybean Export Council, if China were to adopt a 10-percent tariff on US soybeans, US exports to China could fall by a third, and total US soybean production could drop by eight percent. If the rate were to be raised to 30 percent, it could slump by 71 percent, with a 17-percent decrease in total US production.

The report, citing the study findings of two agricultural economists, Taheripour and Tyner, at Purdue University, estimated an annual loss of 1.7 billion to 3.3 billion US dollars to American producers.

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The top 10 states in the US in terms of soybean production based on 2014-2017 figures are Illinois, Iowa, Minnesota, Nebraska, Indiana, Missouri, Ohio, North Dakota, South Dakota and Arkansas, which together yield 95 percent of the output.

In the 2016 US presidential election, eight major agricultural states voted for Donald Trump. If China imposes tariffs on US soybeans, it is expected to severely hit the economies of these states, which could cast a shadow on Trump’s support base, as well as his reelection prospects.