Conventional wisdom holds that trade wars have no winners. Yet as the Trump administration and China continue escalating tariffs and threats of more tariffs, it’s becoming clear that these trade wars have some winners.
When Donald Trump on the campaign trail in 2016 said that “you’re going to be so sick and tired of winning,” he was presumably speaking to Americans. So far, though, the real victors of this trade war have been noncombatants outside the U.S. and certain multinational corporations primed to take advantage of shifting trade flows. The tariffs are damaging a broad range of industries, including agriculture and consumer goods, but a closer look at the soybean market reminds us just how damaging even well-meaning governmental interventions can be.
After Trump imposed steel and aluminum tariffs in March and additional tariffs on China in July, China retaliated with 25 percent tariffs on U.S. soybeans and other agricultural products. It’s a crucial U.S. export: Of the $20 billion in U.S. agricultural goods that went to China last year, more than half was in soybeans. China’s move sent U.S. soybean prices plunging nearly 20 percent, to the detriment of Midwestern farmers.
But not everybody’s suffering. In a recent research note, economists from market-research firm TS Lombard observed that “global trading firms will easily skirt China’s soybean tariffs and leave U.S. growers the primary losers” and that “the big winners will be Brazilian farmers and the big grain companies.” That’s because China consumes 60 percent of the soybeans produced around the world. The country still has a strong need for soybeans, which are crushed to feed its huge livestock industry. With the tariffs rendering U.S. soybean prices suddenly uncompetitive, China is turning elsewhere—especially to Brazil.
Not surprisingly, as Chinese demand for Brazilian soybeans surges, prices there are rising and creating what the industry is calling the “Brazilian soy premium.” The South China Morning Post reported that the Chinese run on Brazilian soybeans is creating “windfall profits for Brazil’s exporters.” Daniel Furlan Amaral, chief economist of the Brazilian Association of Vegetable Oil Industries in Sao Paulo, tells the WEEKLY STANDARD: “As Chicago prices fall, it’s good, for sure, it’s good.”
The tariffs are in essence making Brazil great again—at the direct expense of an American industry.
Then there’s Big Grain. With operations across the globe, multibillion-dollar conglomerates including Cargill, Archer Daniels Midland, and Bunge are easily able to chart the path of least resistance: Buy low in one place, sell high in another. ADM said in July that profits doubled last quarter, largely on the strength of its grain-trading business. “Correct me if I’m wrong, but I sort of think this tariff is good for you,” a Morgan Stanley analyst told company executives on their quarterly earnings call. They didn’t correct him.
The same is true of Cargill, whose grain-trading segment last month posted its strongest spring quarter in seven years. “If you’re one of these big grain companies, you can make a pretty profit just by redirecting trade,” a senior TS Lombard economist told us.
We don’t begrudge companies using their advantages and minimizing disadvantages to turn a profit. Tariffs are taxes on imports. As with other forms of taxes, sophisticated companies will find legal ways to minimize them.
Still, the irony is worth noting. The policies of a populist and protectionist administration have created higher prices for American consumers, bigger profits for foreign and multinational corporations, and financial disruptions for some U.S. manufacturers and for American farmers. Remind us again: Who’s putting America first, and who’s in cahoots with the globalists?
