U.S. Agricultural Exports to China Down

China, the most populous country in the world, is the second largest economy ranked just below the U.S. with a nominal GDP of $10.36 trillion as of 2014. However, this high GDP does not necessarily indicate the wealth of the country. The country ranked 80 for GDP per capita which was only $7,589 as of 2014. In 2007, China’s economy grew by 14.2 percent, according to the IMF. In 2010, it slowed to 10.4 percent. This year, China’s leadership is shooting for about 7 percent. The slowdown is necessary as Beijing transitions from an export-oriented economy to a more sustainable consumption-oriented one.

In 2000, China accounted for just 3 percent of the global goods trade. By 2014, that number had jumped to 10 percent. China became the world’s lead trading nation in 2013. China by itself accounted for about 17 percent of the world’s overall GDP in 2014, but its demand for imports has already fallen 14.6 percent over the first seven months of 2015. In other words, China’s down-trending growth will have an impact on virtually every country in the world. After a decade of rapid growth, China’s appetite for goods and raw materials from the rest of the world appears to be slowing.

The economic relationship between the United States and China begins with the trade ties between the two countries. U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.- China trade rose from $2 billion in 1979 to $591 billion in 2014. China is currently the United States’ second-largest trading partner, its third-largest export market, and its biggest source of imports. American exports to China totaled nearly $125 billion last year. The United States imported nearly $470 billion worth of goods from China in 2014, the majority of which were imports of consumer goods. The value of these imports was equivalent to about 12 percent of all the goods consumed in the country last year. The U.S. trade deficit with China deficit rose from $10 billion in 1990 to $344 billion in 2014.

The top U.S. export to China was computers and electronics, representing about $13.9 billion. The second-largest U.S. export to China was crop production, representing about $9.2 billion in exports. The third-largest U.S. export to China was made up of chemicals, representing about $8.7 billion in exports. The fourth-largest U.S. export to China was transportation equipment, representing about $7.6 billion in equipment; tying with equipment was waste and scrap, also representing about $7.6 billion in U.S. exports to China.

Currently, nearly 17 percent of all U.S. agricultural exports are destined for the Chinese market. These export figures highlight the critical importance of the U.S.-China trade relationship for U.S. agriculture and underscores the United States interest in China’s ability to maintain a strong and stable economy. U.S. farm states are also big exporters to China, which is the biggest market for American agricultural products. Some 20 percent of all U.S. farm exports are sold to China, which bought $30 billion worth of food products in fiscal year 2014, including soybeans, distillers’ grains, hides and skins, tree nuts, coarse grains, cotton and beef, according to the U.S. Department of Agriculture. As the top supplier of agricultural products to China, the United States accounted for 24% of China’s agricultural imports in 2012-13 and ranked No. 1 in soybeans and other oilseeds (36% of China’s imports for the category), cotton (30%), meat (25%), cereal grains (42%), cattle hides (53%), distillers’ dried grains (99%) and hay and forage products (95%).

Over the last two decades, China’s economic prosperity and increased consumer demand for food has significantly contributed to the record growth in United States agricultural exports. During the years immediately following China’s WTO accession, annual U.S. agricultural exports to China surged from under $2 billion to $5 billion in 2005. China was the second-largest U.S. agricultural export market in 2014 at $24.5 billion. From fiscal year (FY) 2000 to FY 2015, the value of U.S. agricultural and related exports to China rose from $1.7 to $25.9 billion dollars, comprising approximately 16 percent of all U.S. agricultural exports. While the rapid growth in U.S. farm exports to China has plateaued in recent years, many macroeconomic conditions signal the potential for continued long-term growth and trade expansion in China.

The amount of food needed by China is staggering because of its near 1.4 billion people. Plus, as the Chinese economy grows and incomes rise, demand for higher protein foods and higher value food is growing even faster. Its major imports are oilseeds (specifically soybeans), vegetable oils and cotton. But needs have been shifting over the years, prompting changes in the import mix and to some degree in policy. While bulk commodities remain predominant in China’s agricultural imports, evolving consumer tastes and increased purchasing power are stimulating demand for higher value products. An increasingly urban population, a growing middle class, and higher disposable incomes have increased Chinese consumers’ ability to diversify their diets and purchase high-value, protein-rich foods.

China’s excess demand for agricultural imports has been channeled into a few commodities that react rising consumer demand for vegetable oils, livestock products, and industrial raw materials. The United States, with its abundant land resources, has a competitive advantage in many of these products. Soybeans, other oilseeds, and fats and oils represent nearly half of China’s agricultural import value. A variety of agricultural goods have made significant contributions to U.S. export totals, many gaining first-time market access to China in the last couple of years. For example, U.S. sorghum and distiller’s dried grains used for animal feed have become billion-dollar exports to China despite being almost non-existent prior to 2008. Sales of these lower-cost feed substitutes have helped offset recent declines in U.S. corn exports caused by China’s restrictive trade policies. Similarly, exports of U.S. hides and skins, seafood, and wood products have recently surpassed the $1 billion mark. While these numbers are significant, soybeans continue to dominate U.S. agricultural exports to China, historically accounting for approximately half the total value of U.S. exports. In FY 2015, U.S. soybean exports to China were valued at $12.7 billion, the second-highest level on record.

The projections indicate that China will increase production of pork and poultry. The rising feed requirements of swine, poultry, and other livestock, however, are dif cult to assess since the dietary needs of animals can be met through various commodities,
a wide range of production practices are used in China, and information on supply and demand of both livestock and feed resources is often unavailable or unreliable. The USDA projections anticipate that China will increase its imports of soybeans and feed grains to support rising domestic meat production. Soybeans are expected to continue as the dominant import commodity, but imports of corn and meats are expected to rise as well.

China’s impact on slowing growth on trade and agriculture was seen lower in 2015, with an even larger drop expected in 2016. Among other factors, the strength of the U.S. dollar relative to other major currencies has been hampering U.S. exports, as a stronger dollar rises the relative price of U.S. products abroad. Overall, U.S. exports of agricultural products from January to June 2015 declined 11% to $67.7 billion compared to the same period last year ($75.7 billion). For the first six months of 2015, U.S. agricultural exports to China, Canada, Mexico, and Japan declined year-over-year, and sales to China ($8.9 billion) were behind those to Canada ($10.7 billion), the main market for U.S. agricultural products so far this year. Devaluation of the Chinese’s yuan can contribute to promote Chinese exports and spur the country’s economic growth, but at the same time, a weaker yuan can induce lower Chinese imports, including imports of U.S. agricultural products, which could further decrease the value of U.S. agricultural exports to China this year.

China’s economic slowdown, subsequent reforms, and recent decline in U.S. exports to China have raised legitimate concerns among agricultural stakeholders about the potential impact to U.S. exports in the near and distant future. China’s Gross Domestic Product (GDP) growth is projected to drop to 6.1% in 2016, their lowest level since 1990. China’s struggling economy has led the country to decrease its exports from the U.S. in favor of cheaper products in New Zealand and South America. Collectively, these events have created uncertainty within the global agricultural marketplace and have caused broad speculation on the future of U.S. trade with China. Projections by the U.S. Department of Agriculture (USDA) and several other sources anticipate continued growth in Chinese agricultural imports through 2023. The agricultural trading partnership between the United States and China is expected to grow further but predicting the future course is difficult.