No tariff is paid when you don’t buy the product.
Well, here comes the blowback from the extremely ill-considered tariff threat that our Dear Leader made against China. Because China has made friends across the globe and has pockets full of cash they can be picky about where they shop. If the place they want to shop suddenly raises prices on them, they can take their money down the street to the competitors.
And that is the situation the US and farmers in Iowa and other soybean growing states find themselves in today. Wednesday it was announced that China would be filling their needs for soybeans by purchasing from Canada, Brazil and other countries. They won’t have to pay our tariff if they don’t purchase the product from us.
“Whatever they’re buying is non-U.S.,” Soren Schroder, CEO of New York-based Bunge, the world’s largest oilseeds processor, told Bloomberg in a phone interview.
China canceled a net 62,690 metric tons of U.S. soybean purchases in the two weeks ended April 19, the Bloomberg article pointed out, citing USDA data for the current marketing year.
The country is the second largest market for U.S. agricultural exports, and soybeans have historically have been one of the top products sold to the Asian giant, according to the U.S. Department of Agriculture Foreign Agricultural Service.
Firing a supplier is a strategy that Walmart has used on their suppliers for decades. If you want to sell to us you have to meet our expectations. If you don’t meet our expectations then your competitor will. In the case of soybeans, our Dear leader thought he could shove his weight around, but the customer balked.
Considering that at this time of year farmers have secured loans to buy seed, fertilizer, herbicides and purchase or fix equipment, they may be stuck in a situation reminiscent of the 1980s. Many farmers had loans they couldn’t repay when prices collapsed. If we have a huge harvest without markets prices will surely collapse.
Of course if the farm economy collapses it will take down many local businesses in the wake.
Planning and negotiation with seasoned negotiators would have been a far smarter approach to the perceived problem. We have done things this way for many decades. Bullying may get short term victories, but it often results in strained or severed relationships.
As I wrote last week many of our current trading partners are checking their options as our unstable and unpredictable president lurches from one extreme to another. Unfortunately, much of our mainstream media does not cover the destruction to the American way of life that is going on behind the scenes. Stories of presidential misdeeds and threats of warfare grab the media attention.
So here we are now early in the growing season and our best customer is looking elsewhere to buy their goods. Some of the lost sales may be made up elsewhere, maybe even through some third party sales to China. But the smart play would be to heal this rift quickly before permanent damage is done.