How Sometimes Just A Threat Of A Tariff Can Change The Flow Of Global Trade

Apr 13, 2018
Originally published on April 13, 2018 10:38 pm
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Before President Trump talked about rejoining the TPP, he was talking about tariffs on Chinese imports. We've talked a lot about the effects trade tariffs can have on the economy. Sometimes just the threat of a tariff can change the flow of global trade. Robert Smith from our Planet Money podcast on the case of the American soybean.

ROBERT SMITH, BYLINE: Last week, when China and the U.S. were nearing the brink of a trade war, the Chinese government put out a list of possible tariffs, a not-so-subtle threat. It would be a shame, they said, if someone like, oh - I don't know - us were to slap a 25 percent tariff on American soybeans. Well, that got the attention of American soy farmers and the guy who represents them, Jim Sutter.

JIM SUTTER: And I am the CEO of the U.S. Soybean Export Council.

SMITH: Jim says roughly 30 percent of the U.S. soy crop goes to China. Even more scary - the U.S. is locked in this ongoing global battle with their arch-soy-rival, Brazil.

So the USA and Brazil are sort of like the Coke and Pepsi of the soybean world?

SUTTER: That's a great analogy - yep, the Coke and the Pepsi of the soybean world.

SMITH: Of course, this is soy. Nobody can taste the difference. Soybean buyers are just looking at the price. And so far the U.S. and Brazil have been neck and neck. But the moment China threatened to tariff, Chinese buyers started to think, wait a minute. This new tariff would totally change the math for us.

SUTTER: These buyers said, wow, I better not buy any U.S. soybeans for fear this may happen. So they all rushed to Brazil and wanted to get coverage of soybeans in the Brazilian market.

SMITH: You could see it all happening in real time. And with all these new orders, the price of Brazilian soybeans starts to jump up. And back in the U.S., all of a sudden the poor American soybean has fewer buyers, and the price starts to drop.

SUTTER: So it was during the U.S. night time, during the daytime in China. Soybean futures on the Chicago Mercantile Exchange dropped by as much as 50 cents a bushel at one point. You know, so in rough numbers, they went from $10.40 a bushel to $9.90 a bushel. You know, that's a big shift.

SMITH: And once again, this is all just based on the threat of a tariff. Luckily for U.S. farmers, the rest of the world starts to get involved at this point. Europe sees that American price is falling and thinks...

SUTTER: Hey, look at the U.S. soybeans. They're on sale.

SMITH: And Europe starts picking up cheap American soybeans. Shipments that were going west to China are all of a sudden headed in the other direction across the Atlantic. Turkey, Egypt, Argentina start buying, and sure enough, the price of American soybeans starts to rebound with all the new buyers. Everything has settled down for now, but it's an indication of just how precariously balanced trade flows are. A few words from one country can shift supply and demand across four continents, a lesson that there's no such thing as a targeted strike in a trade war. Robert Smith, NPR News. Transcript provided by NPR, Copyright NPR.