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Farm wars: agriculture in the front line of trade battles

As the trade war rumbles on without a suitable political solution, US farmers continue to suffer from the trade war. This could create a problem for President Trump in his re-election campaign.

Farm wars: agriculture in the front line of trade battles
Garry white employee

Garry White

in Features


The United States experienced a major agricultural crisis during the 1980s. Record production resulted in a glut of farm commodities, forcing prices down. This excess supply, combined with a US export decline of more than 20% between 1981 and 1983 (following the 1979 Soviet Union embargo), caused farm debt to hit a staggering $215bn by 1984 – double what it had been in 1978. As a result, farm borrowings for land and equipment purchases soared. By the mid-1980s, land prices fell dramatically leading to record foreclosures. Is there a danger that history is repeating itself in the Trump trade war?

US farmers’ bumpy year is likely to continue for some time. US agricultural products that have had retaliatory trade barriers erected by China include orange juice, fruit, nuts, wine and farmed salmon – but its main target has been soya beans.

China vital for US farmers

China used to buy roughly half of all soya bean exports from the US – or one out of every three rows that American farmers grew. The value of these exports was $14bn out of total agricultural exports to China of around $20bn. Processed soya beans are the world’s largest source of animal protein feed and the second largest source of vegetable oil. The crop is particularly important in China, as it is the largest pig producer in the world and pork remains a staple food across the country.

Of the top ten soya bean producing states in 2017, eight produced a majority for Donald Trump in the 2016 presidential election. Only Illinois and Minnesota chose Hillary Clinton over the Republican. Iowa, Nebraska, Indiana, Missouri, Ohio, South Dakota, North Dakota and Kansas all plumped for Trump. However, the escalating trade dispute has hit their incomes hard.

Multi-year low

The Bloomberg Agriculture Subindex, which tracks futures contracts on coffee, corn, cotton, soya beans, soya bean oil, sugar and wheat, fell to its lowest level since the early 1970s in May, although it has since recovered some poise. The index is, however, down by around a third in the last three years. The Congressional Research Service, dubbed Congress’s “think tank”, has calculated that US national net farm income dropped by more than $9bn, or 12%, in 2018.

As a result, Washington has been forced to launch an aid package to prevent losing support from an important part of Trump’s base. Rural Americans were among the most enthusiastic supporters of Donald Trump in the 2016 election, but support has been waning as farm finances suffered. US Agriculture secretary Sonny Perdue said the Trump administration could make as much as $20bn available to farmers in another round of assistance to offset China’s retaliatory tariffs. This will be the second instalment of aid from the US Department of Agriculture (USDA), which pledged up to $12bn in payments to farmers stung by retaliatory duties last year.

The aid is expected to be funded from money raised from the elevated tariffs on Chinese goods. However, the payments have been difficult to administer and farmers have complained about the time lag in receiving cash from last year’s package. The new aid package needs to be delivered with more care, if it is to keep farmers on-side.

A real de-escalation?

At the G20 summit, Xi Jinping and Donald Trump met face to face and there was an apparent de-escalation. The US agreed to not impose new tariffs and allow US companies to sell to Huawei and China agreed to buy more agricultural products.

However, this was a repeat of the situation seen at the previous G20 summit in Buenos Aires so US farmers should not get too excited. Indeed, in Argentina, China agreed to purchase about 14 million tons of US soya beans, but some 6 million tons have still not yet been shipped.

There is also a farming crisis in China that would limit soya bean demand anyway. China and other countries in Asia have been hit by African Swine Fever (ASF), a particularly nasty infection that kills almost 100% of pigs that it infects. Unconfirmed reports from the country suggest that about half of the nation’s breeding pigs have succumbed to the disease. The disease continues to spread and eradication can often take several years, meaning that Chinese soya bean demand could be suppressed for a long time.

Beijing is trying to encourage farmers to restock their herds, but many farmers seem hesitant to do so. Restocking farms previously infected with ASF is risky as the virus can survive for weeks outside a host, potentially living on in a farm that has not been thoroughly disinfected.

Farmers key to 2020

Last month, President Trump gave a speech in Iowa where he tried to reassure the farming community that the trade war’s short-term pain would translate into a long-term gain. “Within a year and a half, I would say, you’ll be in the best position you’ve been in in 15 years as farmers. And you deserve it,” President Trump said. He added: “Under my administration we will always protect and defend our great American patriot farmer. Always.”

Nevertheless, US farmers are enduring their worst conditions in decades. Long-term forecasts from the Department of Agriculture indicate that the American soya bean export market won’t recover to pre-trade-war levels until 2024. China is also investing in producing more of the crop to compensate, with soya bean acreage in the country increasing 16.4% this year, according to its National Bureau of Statistics. Russia and Brazil have also been keen to substitute US exports for their own.

Although Trump’s political future does not entirely depend on the support of farmers they represent a significant part of his base and keeping them happy is an essential part of his re-election strategy. As Brian Kuehl, executive director of US pressure group Farmers for Free Trade said during a recent trip to Washington: “A lot of farmers are going to give the president the benefit of the doubt, and have to date. But the longer the trade war goes on, the more that dynamic changes.”

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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