US farm aid package

A Bonus Is on the Way for Trump for Q2 GDP, Likely to Turn Upside-Down in Q3

Posted Sunday, July 15, 2018 by
Skerdian Meta • 3 min read

The trade war between the US and the rest of the world has begun. The US-China conflict is the main battle right now but the US-EU conflict will likely take centre stage later this month when the two sides will meet to discuss trade. Judging from what we have seen till now, it is very likely that Trump will try to sabotage the talks in order to impose tariffs on European cars that are exported to the US. But at the moment, the battle with China takes centre stage.

The US introduced the first batch of tariffs on Chinese goods worth $34 billion, with another batch worth $16 billion to come into effect soon. US President Donald Trump has even threatened more tariffs to come if China takes retaliatory measures. These tariffs go to $200 billion as we all have heard.

Well, the Chinese have also responded saying that they DON’T WANT A TRADE WAR BUT THEY ARE NOT AFRAID OF ONE. In fact, they have already started to retaliate and they are trying to hit the US on the main agricultural export product for the US, Soybean. China is the main market for the US Soybean producers. Trump started talking seriously about tariffs on China late last year from what I remember and the Chinese haven’t sat on their hands during this time either. They have made their plans and they decided to hit back on the main agricultural export for the US.

The Chinese government introduced tariffs on Soybeans last week. The price of the US Soybean has been declining since late May as Trump started pushing with tariffs. The market knew that soybeans would be the first product to be targeted by the Chinese. China used to import more than $14 billion worth of Soybeans from the US alone. Now, it has shifted the demand to Brazilian Soybean exporters. The price of the Soybean is in free-fall now, declining from around $1,050 in late May to above $800 at the moment.

Soybean prices are heading for $800 and possibly lower

You would think that this would hurt the US Soybean exporters and the Soybean producing industry in the US. Well, you would be correct in this case, but this wouldn’t happen right away. The Chinese are sucking all the Brazilian Soybean supply, and other countries like Egypt, Holland etc are a bit short on Soybeans. With the trade war coming, the US Soybean producers rushed to export as much of their product as possible soon. So, in April and May a big part of the US Soybean production was exported. This also lead to the drop in the price of Soybean during June.

But, all the exports during the spring months will reflect in the Q2 GDP report. Soybean exports have been really solid from March to June. A similar situation happened two years ago, although not related to politics. The US Soybean exports helped boost the GDP by more than 0.8% that year. This time, the increase in the Soybean exports is expected to increase the Q2 GDP figures by 0.6%. That is a pretty decent increase, and guess who is going to beat the chest about such an economic achievement? Of course Donald Trump will mention it as one of the miracles of trade tariffs and his economic plan. So, it is very likely that this turns into a mall victory for Donald Trump. Trump’s aim is for the GDP to grow by 3%-4% on a yearly basis. This year’s annualized GDP is expected to grow at around 3.8% as of now, and knowing Trump, a 0.6% increase in the annualized GDP won’t go down quietly. He will make the most of it.

The problem is that exports have already started to dwindle in July and are expected to fall since the supply has already been shipped in Q2. The preliminary Q3 GDP report will be out in late October, a short time before the US midterm elections. That report is going to be negatively affected by the decline in exports and the price of Soybeans. I don’t think it will have any impact on the elections though, probably not even the tariffs by the EU and other countries which will target some of Trump’s voting base. This is more than just money for the US voters. It is about something bigger I think and it is in their right to vote for whoever they see fit. However, I won’t understand the trade war; less business doesn’t make America great again, it makes everyone smaller, including the US.

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