China-US trade deal could add to tests facing Latin America

A China-US trade deal – if it involves the $40bn-50bn of agriculture trade as reported – could add to the challenges faced by Latin American countries, in cutting their exposure to the world’s top food importer.

Josef Schmidhuber, deputy director in the trade and markets division of the UN’s Food and Agricultural Organization, said that the knock-on impact of the agricultural imports that China is said to be committing to from the US was the “elephant in the room” surrounding a deal.

The $40bn, or more, in US farm exports that China is reportedly ready to buying as part of a trade deal would be roughly twice the record level achieved so far on this route.

According to the US Department of Agriculture, US agricultural exports to China peaked at $25.70bn, in fiscal 2014.

The larger export commitment would mean a reversal of the trend since the countries’ trade war kicked off last year, spurring a quest for soybeans in particular from Latin American suppliers.

‘Could be marginalised’

Latin American exports had “really benefitted” from the trade war, which had even seen Argentina, the world’s top shipper of soybean processing products, importing US supplies for crushing.

However, if China does agree to large-scale ag imports from the US - which have historically comprised about 70% soybeans, with the likes of ethanol and distillers’ grains (DDGs) too – such a trade flow “will reverse”.

A deal on these terms “means Latin American supplies could be marginalised”, Mr Schmidhuber told Global Grain Geneva.

Sensitive time

With the Mercosur trade bloc countries relying on agriculture for some 50% of their exports, the loss of Chinese business could add to challenges already being faced in the region, which is already facing unease.

Over the past month, Chile has declared a state of emergency after violent protests, while protests in Ecuador that forced the government out of the capital, and in Bolivia Evo Morales earlier this week resigned as president and fled to Mexico following a disputed election that triggered weeks of unrest.

Latin America’s dependence on agriculture means that a trade deal as envisaged “could have an impact on the economies of the countries involved”.

Knock-on effects could include curbs on the extra crop export levies that many observers expect Alberto Fernandez to introduce on becoming Argentine president next month,

It will be “very difficult to raise export taxes as they would price themselves out of the market”.