US-China trade dispute could hurt South America
Trade disputes between the US and China have strong potential to hurt South American nations, although some segments will celebrate short-term gains.
Recently, the US government imposed extra-tariffs on Chinese steel and aluminum imports and targeted certain electronic products. In response, the Asian giant slapped tariffs on wine, pork, soybeans, and others.
"This is still not a trade war, we are still at a rhetoric stage," José Augusto de Castro, president of Brazil's exports association AEB, told BNamericas.
"Although in the short term, certain sectors can see some benefits, in the long term this dispute, if it escalates, is bad for all sides, including South American countries, as they are relevant commodities producers," explained Castro.
In recent years, China became South America's key trading partner amid its appetite for iron ore, soybean, oil, and other commodities.
However, if the trade dispute intensifies, China's economy, exporting large volumes to the US, may sustain damage, and, as a side effect, commodities demand could diminish in the medium and long term.
SHORT TERM GAINS
Despite the general negative trend, soybean producers in South America are seeing gains. Globally, soybean production is highly concentrated, with Brazil, the US, but also Argentina as dominant players.
China imports around 100mn metric tons of soybean per year 47% of this total from Brazil, 38% from the US, 11% from Argentina, and 2% from Uruguay, according to BMI Research.
"In the short term, the dispute is positive for Brazil's producers as soy prices increased around 7%, so far this year and there is room to appreciate even more in coming months," said Enilson Nogueira of local consultant group Céleres Consultoria.
According to Nogueira, Brazil's total soybean production reaches this year around 115mn metric tons, with 70mn tons for export, of which 80% go to China.
"The main impact for Brazilian producers so far came from price hikes, not volumes," said Nogueira.
Although a relevant player, due to the particularities of soybean production which demands much time and land, Brazil has limited possibilities to fill in the space left by the US in the short term. To assume a major stake of US trade to China, Brazilian producers need time to change their culture, and that change depends on high prices for a longer period.
"If prices remain high for a prolonged period, Brazilian producers are able to expand production. Currently, 3.5% of Brazil's lands are used for soybean production and if prices remain high, this land space can increase much more and Brazil can replace the stake of the US," Marcos da Rosa, president of soybean producers association Aprosoja, told BNamericas.
Da Rosa, however, recognized the need for more time to measure the relevant impacts, as China already bought next year's supply of soybeans from the US through futures contracts.
But he highlighted general negative effects of trade disputes.
"At the bottom, a trade dispute between China and the US is positive just for speculators, who operate via financial markets. For producers, high price volatility is not good."
Meanwhile, Argentina is also expected to benefit, albeit much less than Brazil due to a severe drought.
This drought will bring Argentina's soybean production to 40mn metric tons with the current crop, down from initially expected 57mn metric tons, according to Céleres Consultoria.
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