Where the U.S. China Trade Relationship Is Not Decoupling

Far beyond their borders, China’s hogs affect the world…and Xi Jinping’s dinner with an Iowa soybean farmer.

Pork Problems

As a sizable slice of China’s GDP, its measure of inflation, and its diet, the pig has economic significance. Too many hogs and not enough consumption create a low price problem.  As a result, pork prices are far from their peak:

China is used to the pork cycle. During a three- or four-year span, first prices rise and farmers earn more. Responding, the supply side wants to produce more. Then, once supply goes up, prices go down. In addition, infecting thousands of pigs and threatening many more, African Swine fever interfered with the cycle. Add to that the pandemic and increasingly larger farms, and we wind up with less predictable pork price swings. Because worries persist that the holiday season won’t bring the traditional demand boost, the hog might constrain China’s GDP growth.

Meanwhile, in the U.S., the soybean farmers that feed Chinese pigs are watching. According to Reuters, soybean exports to China could be down by 12 percent this year.

Below, you can see that China dominates U.S. soybean export markets:

Out Bottom Line: U.S. China Trade

In a March 2023 paper, PIIE (the Peterson Institute for International Economics) summarized the “decoupling” of the U.S. China trade relationship.

Including semiconductors, aircraft, and trucks, U.S. manufacturing exports to China are way below projections. At the same time, U.S. energy and services exports are below expectations.

The one “bright spot” in the U.S. China trade relationship is agriculture:

However, as Xi’s recent dinner indicates, the numbers don’t always tell the whole story.

From a 1985 two-week visit to his recent dinner, Xi Jinping has had a personal connection with Iowa. His 1985 Midwest visit was the first of several. One farmer tells us that, “My parents hosted Xi and his translator, Wenyi Xia, during their stay in Muscatine. Xi slept in my bedroom while my brother and I were away at university, which is why my mother had the empty rooms, and she was happy to offer her hospitality to these visitors from a far-off land.”

Perhaps the decoupling is a bit less that it appears.

My sources and more: Thanks to my Bloomberg Supply Lines newsletter for alerting me to the world’s meat problems and also for its focus on Chinese pork prices. From there, with more about the U.S. China trade relationship, PIIE  had the facts while Farm Policy News, and Reuters had the soybean story. Next, The Washington Post and The Street described the XI iowa visit. And finally, do take a look at our U.S. China Trade tariff update.