The trade war between the US and China has drawn on for six months with little progress toward a resolution. The US placed tariffs on a variety of Chinese goods in June. China responded in-kind by increasing tariffs on US exports, including a broad list of agricultural goods that US farmers ship to China. Both countries have taken action to support their industries that are most negatively impacted by the trade war.
There are two key indicators that can be used to track the trade war: US soybean exports and Chinese manufacturing activity.
Historically, US farmers shipped a large amount of soybeans to China. China specifically targeted soybean exports in retaliation to US tariffs. As a result, US soybean exports declined 98% in 2018 therefore hurting US farmers. The US government responded by offering subsidies to farmers in an attempt to at least partially offset the $1.2 billion decrease in soybean exports.
Chinese manufacturing is also suffering. China’s manufacturing PMI, a leading indicator of manufacturing activity, contracted for the first time in three years in December. This confirms a variety of data points that indicate a slowing in the pace of Chinese economic growth. The Chinese government has responded by pledging to lower taxes, implement a series of subsidies for businesses, and reversing some policies designed to rein in access to credit.
The question is: How far will the trade war go and for how long can government subsidies ease the economic pain of US farmers and Chinese manufacturers?