“Trade War” First Round Goes to the United States

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To recap the action so far, the Trump Administration announced tariffs on $50 billion worth of Chinese goods. China then announced retaliation on $34 billion of US goods, which specifically includes the largest export by value from the US: soybeans. After China’s headline-grabbing announcement, however, the government reassured soybean-importer companies that they would be reimbursed for the tariff. This action has not received as much attention, but it’s very significant, as it nullifies the impact of the original policy.

Soybean growers feared Chinese retaliation because they reasonably assumed that business would go elsewhere if trade policy added to the effective cost of their product. US pundits speculated that targeting agriculture showed that the Chinese knew how to hurt the Trump Administration’s political base of support. But if the authorities refund the tariff to the buyers, the effective cost will remain the same, and business will be relatively unaffected.

The net effect of all this appears to be the Chinese Government paying the US with local soybean importers as middlemen. Not much of a war...so far.

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