A key component of Red China’s response to America’s initial threat to impose tariffs on $50 billion worth of Chinese goods was to impose its own tariffs on one of America’s biggest exports – soybeans. Their goal was to stir up angst among American farmers in the hope that they would apply pressure on Trump to back off. In my post titled “A Trade War? Let’s Get it On!”, I predicted that their strategy was doomed to failure:
“Oh, by the way, the threat of tariffs on American soybeans would hurt the Chinese more than Americans. Does Chairman Xi think that his people will simply eat less? Of course not. He’ll have to get his soybeans somewhere else, like Brazil, and now those countries who imported soybeans from Brazil will turn to the U.S., probably bidding up the cost of soybeans. No skin off of our noses, Chairman Xi.”
Now comes the first evidence that this exact scenario has already begun to play out. In the above-linked article, Reuters reports that America has suddenly begun getting huge orders for soybeans from the EU, who now finds the price of American soybeans more attractive than the rising prices in Brazil.
“Escalating tensions between the United States and China have triggered a flurry of U.S. soybean purchases by European buyers … helped to underpin benchmark Chicago Board of Trade soybean prices after U.S. President Donald Trump threatened to slap tariffs on an additional $100 billion of Chinese goods.
The USDA said 458,000 tonnes of U.S. soybeans were sold to undisclosed destinations, which traders and grains analysts said included EU soybean processors such as the Netherlands and Germany.
If the entire volume is confirmed to be going to the European Union, it would be the largest one-off sale to the bloc in more than 15 years, according to USDA data. The USDA could not immediately be reached for comment.
“We’re seeing a realignment of trade,” largely because the politics is driving up Brazilian soybean prices, said Jack Scoville, analyst with the Price Futures Group.”
I’ve said it before and I’ll say it again over and over. There is absolutely nothing to fear from America’s efforts to restore a balance of trade with Red China. Since we are the ones with the huge trade deficit and they are the ones with a huge trade surplus, it’s impossible for America to lose, and impossible for Red China to win. They are absolutely impotent in this fight. China’s goods become too expensive? No problem! They’re not the only game in town. We’ll buy them from someone else. Better yet, we’ll begin making them ourselves. China provides us absolutely nothing that we can’t make ourselves more efficiently, using cleaner, more environmentally sound processes, and more ethically in terms of worker rights. And, truth be told, we can make them cheaper. The logistics involved in shipping things halfway around the world isn’t cheap, you know. (Did you know that container ships that move goods all over the world, goods which could just as easily be made locally, consume five billion barrels of oil per year?)
And China buys nothing from us that can’t be sold to other customers around the world.
They’ll stop buying our debt, or sell off what they have? Go ahead. U.S treasuries are priced in dollars. Whoever they sell them to has to pay for them with dollars. So now they’re stuck with dollars which have probably dropped in value – the very situation that necessitated them buying the bonds in the first place. And, just as we’re seeing with soybeans, there’ll be other investors eager to snap them up. Heck, if American households switched just a small part of their savings into U.S. bonds, that demand alone would sop up every single bond that China owns. I won’t take credit for this quote, but I can’t remember where I read it recently, that Red China’s threat to dump its U.S. treasury holdings is like a man holding a gun to his head and saying, “I have a hostage.”
There is nothing to fear here. America is going to come out a big winner. It’s a slam dunk.