American farmers could be the ones who take the biggest hit if the United States and China have a trade war.

“A significant part of U.S. exports in China and greater China are agricultural products,” said Brad Setser, a senior fellow at the Council on Foreign Relations.

“The Chinese have made it clear that if the U.S. were to impose some kind of duties, … China would respond in some way and on exports to China,” he said.

According to the U.S. Department of Agriculture Foreign Agricultural Service, China is the second largest market for U.S. agricultural exports. Soybeans accounted for $10.5 billion of the $20.2 billion in farm exports to China in 2015.

China’s state-backed Global Times said in an editorial after the U.S. president election that Beijing will take action against the soybean and corn industries in retaliation for any U.S. tariffs on China.

“It’s all about the potential,” said Brandon Kliethermes, an agricultural economist at IHS Markit in Missouri.

“You don’t want to irritate one of your largest buyers,” he said, “and that’s got everybody on edge right now.”

The USDA Foreign Agricultural Service said that the U.S. is the single largest almond supplier to China and is the largest supplier of walnuts also. And hence for growers of nuts such as almonds, the stakes are highest as Chinese traditionally enjoy these nuts as snacks.

“In some cases, Chinese sanctions prove to be ineffective, but no doubt in areas in meat and nut production, there’s potential for damage from sanctions,” Setser said.

“Those are currently the kinds of products which have been on the front-line retaliation cycles in the past, and I’d expect them to be on the front line for retaliation again,” he said.

Analysts do not expect that industry to suffer much in the event of Chinese sanctions even though soybeans make up the bulk of U.S. agricultural imports to China. Enough soybeans are not grown in China to fulfill its internal demands. And analysts said that the U.S. may end up diverting its production to those southern countries if China imports soybeans from producers in Brazil or Argentina.

But apart from the farmers, there are others who have stake s in U.S.-China agricultural trade. In October 2014, sales on Chinese e-commerce giant Alibaba’s Tmall site was launched by Costco, which sells dried nuts and cranberries in bulk.

“Quality American food products are highly desired by China’s growing middle class,” said Brendan Ahern, chief investment officer at KraneShares, which sells China-focused exchange-traded funds.

The company’s expansion would focus on products such as fruit and regions such as the American Midwest, Alibaba Executive Chairman Jack Ma told reporters after meeting with President Donald Trump earlier this month.

The USDA Foreign Agricultural Service said that there has been a 200 per cent growth in U.S. agricultural exports to China over the past decade.

There is still potential for significant future growth.

$11.75 billion to the U.S. economy from 2016 to 2025, and $3.82 billion to China could be added by resolving trade barriers between the U.S. and China and better regulation on agricultural products, predicted a November 2016 study from the U.S. Chamber of Commerce.

“Just mentioning [China] can get people excited,” Kliethermes said. “A lot of people in that market don’t want to close that market down.”

(Adapted from CNBC)

Categories: Economy & Finance, Uncategorized