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US-China Trade War: Exposed Agriculture and Manufacturing Industries

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by Nick Masters, Lead Industry Research Analyst
Dec 10 2019

Over the past 16 months, the trade war between the United States and China (the world’s two largest economies) has been fueled by several rounds of tariffs on goods affecting a wide swath of sectors. Most notably, the Agriculture, Forestry, Fishing and Hunting sector (IBISWorld sector report 11) and Manufacturing (sector report 31-33) sectors in the United States are currently contending with heightened tariffs on imports.

At the root of the trade war are several commercial, legal and economic grievances by the United States. Most notably, proper enforcement of intellectual property (IP) rights and the opening of the Chinese economy to foreign companies are key issues between the two economic superpowers. While recent progress has been made toward an initial trade deal, the effects of the prolonged economic conflict have already become clear across several industries. In particular, the trade war has crippled the Agriculture sector and its extensive supply chain.


Mixed signals

Announced by the US Trade Representative in August, an additional round of tariffs on $160.0 billion of Chinese imports is scheduled to go into effect December 15, making the date an implicit deadline for US-China trade negotiators on a phase-one deal. Over the past several weeks, both countries have seemed optimistic regarding a trade deal arriving by December 15 or sooner. Nonetheless, renewed uncertainty from the United States has raised doubts concerning the implementation of a deal.

In November, positive signals toward a phase-one trade deal boosted optimism among businesses and investors. This is due to positive signs of cooperation on both sides. Most recently, China tightened its intellectual property laws by raising fines and incentivizing regulators to focus on market efficiency through tougher IP law enforcement. Although not branded as a direct concession to US demands, China’s actions represent a step in the right direction in leveling the economic playing field for US companies operating in China. On the US side of the trade war, President Trump expressed explicit optimism about a forthcoming trade deal.

“The China deal is coming along very well,” said President Trump at the National College Athletic Association Collegiate National Champions Day event at the White House November 22. He made similar remarks soon after suggesting progress toward an initial deal.

However, at the December 3 North Atlantic Treaty Organization (NATO) summit, Trump’s remarks regarding an impending trade deal turned negative, suggesting that the United States would wait until after the 2020 presidential election to reach a deal with China. In turn, the change in US sentiment toward a US-China trade deal has made the likelihood of an imminent agreement increasingly uncertain.


Industries most exposed

From an industry perspective, the trade war has sent shockwaves through the supply chains of the Agricultural and Manufacturing sectors. At the forefront of the trade war is the $40.1-billion Soybean Farming industry (IBISWorld Report 11111), an industry that has historically been reliant on exports to China. Following China’s 25.0% retaliatory tariff on US soybean imports in 2018 (in addition to wheat, sorghum, corn and beef), the value of US soybean exports declined 74.5% year over year. Despite China’s recent concession to increase soybean purchases, the value of US soybean exports to China still remain near decade lows.

While agricultural producers have been hit the hardest by Chinese tariffs, the effects of the trade war are also negatively affecting upstream agribusiness industries. In particular, the Tractors & Agricultural Machinery Manufacturing (33311) and Fertilizer Manufacturing (32531) industries are both expected to decline 2.0% and 1.5%, respectively, in 2019 alone. Major players within the Tractors & Agricultural Machinery Manufacturing industry cite the trade war as a major impediment to growth. Specifically, John Deere missed Q2 earnings estimates and lowered its fiscal year 2019 guidance as a result of faltering sales to the Agricultural Sector. 


Looking for previous industry coverage on the US-China trade war? Check out our related Analyst Insight discussing the top US industries exposed to ongoing trade tensions here!


Edited and Infographic Design by Sean Egan