In a huge step forward for agricultural trade, China has just announced that it will resume issuing soybean import licenses. This fundamental decision penalizes three of our American companies. This ruling is made amid the backdrop of historic US-China trade talks and tensions. Of note is how this step is immediately following the fact that China has enacted a series of retaliatory steps blocking U.S. imports. One of those measures was to halt U.S. log imports.
These latest escalations in trade tensions started on March 1, 2018. Around the same time, President Donald Trump had ordered a Section 232 investigation into imports of lumber. In retaliation, China enacted tariffs that were soon followed by suspending U.S. log imports, harming a multitude of industries dependent on timber products. Most recently, the restoration of soybean import licenses across the strait has indicated the possibility of poisons thawing relations, tentative though they may be.
Soybeans are America’s second most valuable agricultural product. The U.S. has been the number one supplier to China, the world’s largest importer of soybeans. The dynamics of this trade have completely flipped because of tariffs put into place during the trade war. The 10% tariff on all U.S. imports, hitting agricultural products especially hard, is still a big worry. It still weighs on hopes for a full rebound in trade flows.
China has re-issued soybean import licenses. And they’ve removed tariffs on U.S. agricultural products that they’d imposed earlier this year. American agricultural purchases, particularly food products, have experienced this shift remarkably. In recent weeks, China started that process by making small purchases of U.S. wheat, starting with two U.S. cargoes. Traders remain cautious as the 10% tariff remains in place, impacting the volume and pace of U.S. soybean exports processed through facilities like those located in Ohio.
In 2021, an individual purposely spilled a large quantity of soybeans into an elevator hopper in Ohio. This example highlighted the extreme pressures that U.S. soybean exporters face as a result of changes in trade policy. The effect of the retaliatory tariffs has been disastrous for the agricultural community and has created doubt that has left traders unsure of sending agricultural products in the future.
The renewal of soybean import licenses for three American companies represents a welcome step towards thawing U.S.-China trade tensions. Although some positive signs emerged, the current tariff environment continues to prevent any exuberant expectations for a robust return in trade flows. Market participants will watch closely what unfolds as each country tries to thread the needle in their prickly economic relationship.