Trade War – Soybean Inspections

It’s very important to avoid listening to cynics who claim soybeans aren’t important. They are America’s largest export to China.

The trade war between China and American appears to be getting worse. It’s important to follow this commodity closely.

America has a mixed economy while China has a command economy. China has embraced some parts of the free market in the past couple economic cycles.

This means America needs to issue tariffs to indirectly force its private firms to stop buying Chinese products.

It’s much easier for the U.S. government to issue tariffs which say ‘you can technically still buy Chinese products, but you’ll go out of business if you do so’ than to make it illegal. That’s the type of decree the government of a country with a command economy would issue.

The tariffs are also a better-negotiating tactic. It’s slowly squeezing the Chinese economy like how a snake squeezes its prey. If it became illegal to purchase Chinese goods, then there wouldn’t be many ways to threaten China. That is, outside of a traditional act of war after the law was enacted.

The reason I’m framing the discussion in this way is because China can just stop buying American products, making the tariffs meaningless.

There’s a threshold where private industries can’t buy Chinese products. That’s irrelevant if the Chinese government decides not to buy American goods anymore.

China has switched to buying Brazilian soybeans instead of American soybeans which will hurt American farmers without a high tariff being enacted.

The chart below shows the soybean inspections throughout the year, going back until 2015. As you can see, inspections usually soar in October and November.

They have increased this October, but not nearly as much as the past 3 years. Two American soybean shipments to China were inspected for export last week.