Despite its known economic, technological and military might, the US has ponderously transitioned over the years from its comfort zone to a state of benign dependency and now suddenly finds itself in a spot of vulnerability.
The USA is the world’s largest producer of agricultural commodities. The wide range includes grains (mainly wheat, corn, and soybeans), fruits, vegetables, dry nuts (almonds, pistachios, and walnuts), fibre (cotton), and so on.
Of the world’s total grain production of 2,350 million metric tonnes (MMT), the US contributes about 450 MMT, of which it exports about 100 MMT.
Driven by subsidies and technology, the US harvests quantities far beyond its domestic needs. The large surplus finds its way to the international market, aided by several export promotion schemes. This agri-export is projected as the country’s contribution to global food security.
About 25 years ago, in 2001, the US helped China join the World Trade Organisation as a member after over a decade of negotiations. China was then emerging as an economic powerhouse, growing at a scorching pace. The Chinese appetite for commodities was ravenous and continues to be so even now.
As quid pro quo, China agreed to import agricultural goods from the US, particularly soybean, to meet its burgeoning domestic demand for animal feed, and cotton to meet the raw material needs of its large textile sector.
As it turned out, the US soon got into a comfort zone, routinely supplying massive quantities of soybeans, cotton and other goods year after year. Over time, this comfortable, mutually beneficial trade relationship generated complacency among the US growers. They took the large Chinese market for granted.
The year 2018-2019—during Trump’s first term as president—saw friction develop in the cosy relationship between the US and China when Trump first imposed tariffs on Chinese steel and aluminium. China retaliated by slapping reciprocal tariffs on US-origin goods, including major farm goods like soybeans and cotton.
Sensing supply risk, China started to diversify its supply sources. The trade war was all but forgotten when a new US president came in (2020), and the world went through the pandemic-inflicted lockdown and suffered serious economic consequences for an extended period.
Now, Trump is back in his second term with a more strident stance on tariffs. But China has options. Currently, China is buying its soybean requirements from Brazil, which has emerged as the world’s largest producer in recent years, relegating the US to second place.
The US harvests about 115 MMT of soybean, of which it exports about 50 MMT. China’s import demand for soybean (to meet feed demand from its huge livestock industry) has grown over the years and stands at a massive 100 MMT a year. The US soybean enjoys a major share of Chinese annual demand but is now rapidly losing market share.
Soybean growers in the US Midwest (Iowa, Illinois, and Nebraska) are up in arms following the loss of a large export market and loss of income. Domestic prices have collapsed, inflicting losses on big farmers. Many are demanding compensation from the Trump administration.
In a quick turn of events, the US finds itself in a vulnerable spot. China knows the US’s vulnerability and is most likely to target US farm goods.
There are lessons. Globalisation is a great equaliser. It makes countries inter-dependent for their needs. Whether it is energy products, metals or agriculture, the natural resource endowments of countries vary. No country has all the resources it needs. Goods flow from surplus to deficit regions.
Given this inter-connectedness, geopolitical developments create uncertainties and risks—known and unknown; unforeseen and unforeseeable. Countries have to be prepared to manage risks. There’s much to learn from recent history and from the ongoing tariff-driven events.
Globally, the policy context has become complex. Countries struggle to balance domestic socio-economic and political compulsions on the one hand and international obligations on the other. De-risking and building resilience against shocks is the way forward.
G Chandrashekhar is an economist, senior journalist and policy commentator, and provides policy inputs for the government. Views are personal.
