The Soy Principle

Trump’s policies of tariffs and threats are supposed to benefit the U.S. and impress voters. But it could fall flat.

President Donald Trump handles the economy in his own way. He puts pressure on markets and prices with tariffs and threats. For example, oil: Trump clamors for cheap oil, demands the Saudis keep the oil faucets open, and because Saudi Crown Prince Mohammed bin Salman is yielding after the murder of Jamal Khashoggi and oil stores in the U.S. are overflowing, the price goes down. Trump is thus serving his voter base, which drives cars happily and often. And the United States’ own oil industry can also do good business at a price of $50 per barrel, as the last few years have shown.

Trump follows this same principle in his conflicts with China. First, he threatens and makes a show of strength to China, with the message that it will help the U.S. economy. His voters like it that way.

To maintain this voter approval, Trump will have to be more willing to compromise in 2019. The reason: soy. The U.S. is the world-wide largest producer of the oleic fruit. Every third soybean in the world sprouts on American soil. Half of American soy is exported, especially to China.

The Collapse of Soybean Sales

Since Trump has imposed tariffs on Chinese exports, sales on the raw ingredient for tofu have collapsed. Whereas previously millions of tons were shipped across the Pacific, exports to China currently stand at zero. Prices for soy have also sunk to their lowest since the financial crisis. This is causing problems for farmers, many of whom are ardent Trump supporters. For now, they continue to support him, presumably because of his hard line, and presumably also because they can fill up their gas tanks more cheaply.

The U.S. president still has time. For this reason, the U.S. can question the truce signed with China at the Group of 20 summit of leading rich and developing nations. And for this reason, Trump still does not have to demonstrate significant concessions in early 2019 – after the 90 days that both sides agreed upon for evaluation. But starting in the fall or winter of 2019, things will look different. The next presidential election will only be one year away. Then Trump will have to seek cooperation with China, either lifting or reducing the tariffs, if nothing else stands in the way of soy exports. The desired effect: prices go back up as tensions ease. American farmers will feel that in their wallets in the election year, and marvel at their president for having really taken it to the Chinese, but also for having found a solution for them in the end.

The problem with the soy principle is that no one knows if it will really happen this way. It assumes that the participants allow themselves to be manipulated like pawns. China’s consumers are meanwhile reorienting themselves. Soybeans can also grow elsewhere: for instance in Brazil, which is currently registering a record harvest. That country is deforesting its rainforests to expand its plantations. It will soon be ruled by the right-wing populist Jair Bolsonaro, who doesn’t care about the rainforests and wants to expand soy production.

Trump may not care about the environmental consequences, but the U.S. is running the risk that not only the Chinese, but also the Canadians, Japanese, and Europeans will free themselves from the world’s largest economy and the policies of tariffs and threats – and that U.S. soy exports thus will permanently vanish. Then, the president could literally choke on his economic policies. After all, he would hardly be able to eat that much tofu by himself.