Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Trade wars cost U.S., China billions of dollars each in 2018

Published 12/28/2018, 04:57 PM
Updated 12/28/2018, 04:57 PM
© Reuters. Shipping containers are seen at a port in Shanghai

© Reuters. Shipping containers are seen at a port in Shanghai

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.

China's tariffs improved margins for U.S. soy crushers such as Archer Daniels Midland Co (N:ADM) 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 (NYSE:GM), Ford and Fiat Chrysler Automobiles – have each said higher tariff costs will result in a hit to profits of about $1 billion this year.

© Reuters. Shipping containers are seen at a port in Shanghai

The pain is ongoing, economists say: Ford and Fiat expect a similar hit in 2019.

Latest comments

The trade war is hilarious. You couldn't make it up! Both sides losing billions. Priceless! :)
You do realize how much China has taken advantage of the US for the past 15 years and finally we have a backbone. It needs to be done to protect our future.
Increase competitive edge is the way forward, trade wars are detrimental for all involved.
I keep suggesting to Xi, but he doesn't listen. He needs to build a great wall to protect his southern border.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.