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Soybeans, Brazil and Damocles*.

You will know by now about the US/China deal – “massive”, “the largest ever signed”, “we made a fantastic deal”. You may also have read some of the criticism. Not the least of which is that no “contract” has actually been “signed” by anyone. A real contract – now that would float a few boats!

A few thoughts for youtoplay with.

The Soybean “deal” is indeed “massive” and also “fantastic” perhaps more than most realise. China will now purchase somewhere between $40 and $50 billion of beans from US farmers. The details? No idea – “our farmers can work that out.”

 Well I doubt it. The total agricultural exports (inc pigs and chickens and anything else rural you like to lump into the figures) peaked at just $24billion (2016). Can our fine men of the fields  ramp up soybean production alone to more than double the total highest figure achieved so far for all things agricultural ? Indeed given the ravages of climate change in the mid west will they ever get close to such figures again. This is negotiating with jellow – “what is $10billion betwen friends? Let the farmers sort it out”. This is the same reckless way with figures that has the President threatening Turkey to cut trade by $100billion when the total bilateral trade is barely $21billion. “What is $80 billion between enemies? it sounded good at the time”.

But lets dig a little further ino this “fantastic” deal.

What will the US soybean deliveries be replacing? Who is currently supplying China? The demand is not infinite and this is a lot of beans. It appears Brazil is a major supplier, so lets use “Brazil” as a surrogate collective noun for all other suppliers. Our deal surely will beneft our farmers at the cost of “Brazil” – and we know their economy needs all the help it can get. No mention of a meeting with the “Brazil” group.

And think for a moment about the real world of geoeconomics. Think about the leverage just handed the Chinese merchants. we now have the US looking to prove it can make a deal that really does help its farmers, against the “Brazil” Group desperate to retain the market for the beans it has already committed to. The stage is set for a price war – China the beneficiary.

And finally there are the threatening longer term implications. The Chinese have won a geoeconomic pole position, they have traded their purchase power for political influence – they have won this round of the great game of global economic chess. Farmers in the mid west will change over to soybeans. They will raise money, till, plant, irrigate and fertilise in the face of the increasingly volatile climate. And then China will threaten to cut its purchse order if the US does not do its bidding. 

If only, if only the White House played chess – let alone “Go”. If only they listened to historians. In their naivety they have exaggerated a barely half baked deal, claiming victory before the ink is anywhere near the page let alone dry. They may have harmed the economies of more than one other nation. They hav misled their farmers and they have given China control of the geoeconomic Damoclean sword.

“Fantastic”.

Have a good day. James

*Cicero in Rome wrote that Damocles, pandering to king Dionysius, envied his position of power and luxury. So the King agreed to switch roles for a day to “share the experience” – but he arranged for a huge sword to hang over the throne held at the pommel by a single horse hair. Cicero wrote ” Dionysius wanted to show nothing happy awaits a man for whom fear of the future looms, and that was the lot of the King.”