In this week’s podcast, Trivium China Co-founder Andrew Polk is joined by Trivium’s Director of China Ag Research Even Pay.
The two first discuss the biggest policy move out of China over the last week:
Beijing’s big new plan to boost consumption this year
Spoiler alert: There’s a lot in the plan, but we’re still skeptical it will be enough to get consumers to pull out their wallets any time soon.
Andrew and Even then discuss how all the latest moves in the US-China trade war are impacting China’s ag sector – and Xi Jinping’s view of food security.
They also touch on what may be coming next on the ag, food security, and trade fronts.
Enjoy! Full transcript follows!
Andrew Polk (00:10): Hi everybody, and welcome to the latest Trivium China podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium China co-Founder, Andrew Polk. And today, I’m excited to be joined by a new guest from Inside Trivium. She’s a director at Trivium and heads up our agriculture policy research, but she also plays a big role in our energy, commodities, and geopolitics coverage. Joining from our home base in Bangkok, we have, the one and only, Even Pay. Even, welcome to the pod. How are things going?
Even Pay (00:40): Yeah, life is great. You know, can’t complain. Living in the tropics.
Andrew (00:45): Yeah. Well, yeah, I guess you can say that when you’re in Bangkok. You’re one of the few people I’ve talked to recently who just said, comes right out and is like, “Life is great.” Everybody’s usually pretty overwhelmed these days, so glad to hear that.
Even (00:57): Yeah, it’s strategic, I guess. Strategic location.
Andrew (01:01): Well, I’m particularly glad to have even on the podcast today because besides doing the normal coverage of the latest policy and political developments out of China, Even is going to walk us through how the latest actions in the heightened U.S. trade war are affecting the ag sector, and specifically Beijing’s view of food security. So, in terms of the agenda, we’re going to go through, first, Beijing’s latest plan to boost consumption, which is really the biggest news out of China this week, at least on the policy front. And then we’re going to dive into how the ag sector fits into the latest action in the trade war. But before we do that, and especially since it’s Even’s first time on the pod, we have to start with our customary vibe check. Even, it’s later over in Bangkok right now, but how’s your vibe going into our discussion?
Even (01:48): Yeah, well, life is good in Bangkok, but, honestly, the vibes are a little bit ominous. And that’s not just because it’s after dark. It’s the uncertainty that we’ve been seeing in the U.S.-China relationship for the last couple of months is catching up with me. But that’s also true here in Bangkok. Of course, Thailand is also really reliant on its economic relationship, both with the U.S. and with China. So, while we are waiting to see where the chips fall with respect to U.S.-China, the rest of the world is waiting with us.
Andrew (02:19): Yeah. Everyone has an interest in how all this shakes out and no area more so than Southeast Asia, I would say.
Even (02:27): Yeah. So, what’s the vibe in D.C. these days?
Andrew (02:30): Yeah, good question. I mean, the overall vibe in D.C. is certainly one of being overwhelmed and exhausted — Not me, the city, and people who work for the federal government, or many of them. But I, and my vibe’s great, I’m headed to Shanghai on Friday to see our team, both our team in Shanghai and the team in Beijing who’s coming down to Shanghai. So, I couldn’t be more excited. I’m ready to get on a plane and go see everybody. So, that’ll be good. But great to have you. Thanks for the vibe check. And one last thing before we get into the meat of the discussion, a couple of quick housekeeping notes. First, another quick reminder to folks that as of two weeks ago, and as I said at the top of the podcast, we are proud new members of the Sinica Podcast Network. Very excited about that.
(03:14):
We welcome all our new listeners who found us via Kaiser Kuo’s feed, and we are looking forward to growing that partnership and doing more together with Kaiser. Secondly, another quick reminder, we are not just a podcast. Trivium China is a strategic advisory firm that helps businesses and investors navigate the China policy landscape. So, if you need any help on that front, please reach out to us at hq@triviumchina.com. We’d love to have a conversation about how we can support your business or fund. So, just always have to put that plug-in because a growing business means we can provide more great free content like this. Otherwise, if you’re interested in receiving more Trivium content, check out our website at www.triviumchina.com. We have a bunch of different subscription products, both free and paid. You’ll find something for your China-related needs there. So, check that out — www.triviumchina.com.
(04:05):
And finally, please do tell your friends and colleagues about Trivium and about the podcast. And while you’re at it, please subscribe to the pod and leave us a rating. Just helps more people find out about it. All right, so with that out of the way, let’s get into it. So, Even, we have to start with the biggest news out of China this week, really, which was the recently released action plan to boost consumption, which came out on Sunday. Here are a few details about the plan that was jointly released by the Party Central Committee and the State Council. And that’s a pretty big deal for listeners who might not know because jointly released documents from the Party and State Council are some of the highest level, really most authoritative policy documents in the Chinese system. So, this is, really, a very big signal that senior officials are getting more serious, finally, about boosting consumption this year.
(04:58):
And that came after the Government Work Report that was released at the two sessions on March 5th, which really identified boosting consumption as the number one policy goal for the year. So, it really didn’t take much time for them to put their money where their mouths were on this one and roll out this plan like we really are going to try to do some things to get consumption up because it’s really been one of the big drags on the economy the past three years really. So, the plan aims to boost household incomes somewhat circuitously, we’d say, by boosting business income first. And that includes by promoting employment in key sectors, including the government and the private sector to drive wage growth, and then accelerating repayment of state arrears to small and medium-sized businesses. So, trying to get smaller and private businesses in better shape so that their employees have more money in their pockets and are feeling more optimistic about the economy and more willing to spend.
(05:59):
And then other income-boosting measures include raising minimum wages, increasing farmers’ earnings from land appreciation and rural housing rentals, expanding property income channels, encouraging institutional investments to stabilize the stock market. Finally, the plan reiterated the Government Work Report’s commitment to improve public services, including by expanding education resources for children of migrant workers. So, that’s something we’ve talked a lot about with Dinny on the pod. The migrant worker population is really a channel that Beijing could use to get a lot more consumption in the economy. And it’s a segment of the population that sorely needs more support. The final thing that the plan does is to try to stimulate housing sales by allowing more flexible use of the government administrative Housing Providence Fund, which is an employee and employer-funded, social insurance pool designed to help home buyers safer homes.
(06:57)
Okay, that’s a lot of different things. They’re talking about supporting migrants, they’re talking about boosting businesses, paying arrears to businesses so they can pay back wages potentially to their employees. They’re talking about other ways to get incomes up. Let me throw this over to you, Even. What are your general thoughts on this plan or what do you think authorities are trying to do here?
Even (07:19): Yeah, definitely. So, you just threw a lot at the wall. The context for all of this, of course, is the consumption growth didn’t really come back, after the pandemic, back to pre-pandemic levels. So, for the past couple of years, consumption really is sort of structurally reset at a much lower level than it had been. And as Beijing looks to try to fix this, there are kind of two underlying issues that need to get addressed. Namely, households need cash to spend and they need the confidence to spend it. And both of those kind of took a pretty hard hit in the past few years. So, what we’re starting to see both coming out of the two sessions and now in this massive 30-point action plan is a concerted effort to shore up both of those. Firstly, like you note Beijing is trying to put cash into the hands of households, but they’re doing it in a kind of messy and circuitous way, at least to some degree, right?
(08:16):
Looking to support a bit more employment, help people find better jobs and maybe even get a raise, and put businesses in a better position to offer raises. But we’ve kind of seen something similar over the past few years, right? The government trying to get money to households through a moderated push onto businesses and it hasn’t really worked too great thus far. So, I’m not holding my breath. But there is some more stuff here in terms of getting cash directly into the hands of households and including spending the subsidy program for trading in a wide variety of consumer good. That’s positive and does look like it’s set to grow. But really I think what we can take to the bank in this plan is the effort to lift some of those burdens. And I know Dinny’s been talking about this, but stuff like expanding affordable elder care over time, making preschool free, and then, yeah, getting migrant workers better included into the social welfare programs that are available and should be available to them as long-term urban residents effectively.
(09:23):
But if they haven’t got that residency, they haven’t been able to access those programs despite paying into the tax pool of that local economy. So, this stuff is going to take a little bit more time to get going, but you can definitely take these measures to the bank, right? The thing about lifting burdens off of lower-income families is that if they’re already spending 80% or 90% of their incomes, then when you lift that burden, it almost directly translates into consumption, right? These are people that have needs that they’re neglecting, and that money will go straight back out into the economy. But the last piece of this is that a bunch of these measures are aimed directly at rebuilding confidence, right? For those households that saw the value of their most valuable asset, their homes kind of declining for the past few years, putting a floor under property prices is going to build up confidence.
(10:17):
And the same thing is true of efforts to stabilize the stock market. So, for people who are putting their savings there, seeing that market stay stable and tick modestly upward over time in a predictable way is really positive. And then, of course, for white-collar working folks, some of the just-positive energy is going to be a big help, right? Hearing good news about Chinese companies innovating, expanding and going global, it gives folks a sense that their long-term employment prospects are good. And all of that contributes to consumption.
Andrew (10:50): Yeah, that’s a really good point. I mean, we’ve been talking for, I mean, months about how consumption’s the main thing holding back the economy, or one of the main things. I mean, properties really probably the main thing. But we business and consumer confidence and, therefore, weak consumption also is another big thing. And those are obviously related as you just pointed out because people’s home value’s declining; that they feel less wealthy and they’re willing to spend less. I think my view on the plan would be sort of a mixed review or more of a mixed review maybe in that a lot of the measures, as I said at the top when I was introducing it, seemed a little circuitous, very typical.
(11:30)
Where you’re going to fix the demand side by addressing the supply side. We’re not going to go directly to the employees, we’re going to go through businesses, which is not as direct, or straightforward as just putting money in people’s pockets, right? But at least they’re doing something and signaling at a very high level, like, we really understand this is an issue and are trying to more proactively address it. I think, to your point, even if the measures don’t work or to your last point, even if the measures don’t fully perfectly or they take time, or they’re circuitous, they may lead to sort of more confidence because people see, hey, the government’s doing something, we’re finally getting some relief, at least things are moving. So, we’ll see how it pans out, but at least it has the chance to sort of make people feel better, and the government’s there and has their back. That’s one that we will be keeping an eye on in the weeks and months ahead.
(12:26)
But again, just underscores that consumption is really number one on the policy agenda this year in China. All right, so let’s move on.
Even (12:34): Yeah.
Andrew: Oh, go ahead. Do you have something else to add?
Even (12:38): Just to add one more thing into the column of a mixed but positive signal about this is that at the two sessions in the government work report, Premier Li Qiang really emphasized how much time is of the essence in crafting sort of good supportive economic policy. And he promised that his government is going to take action fast this year. And I think that the quick moves to get this plan out in circulating is another sort of piece of that puzzle. So, if Beijing keeps it snappy, last year we waited until the bitter end of Q3 before we started to get some serious sort of stimulus measures.
(13:17)
If that’s changed, and we’re going to get rapid action this year, then that in and of itself I think is going to help with that confidence piece.
Andrew (13:24): Yeah, good point. Good point. Yeah. Well, we’ll see. It’s been an issue for three or four years. It’s good that they’re coming out at the beginning of 2025, but it feels like they should have done it in 2023, but, you know, better late than never. And we’ll see how that impacts the economy. But I want to move on now to the expertise that you have in particular and another big policy move that was related to it this week, which is that on Monday, China renewed export registrations for U.S. pork and poultry plant, that’s kind of hard to say, U.S. pork and poultry plants to send products to China.
(14:00)
According to Reuters, Beijing has renewed registrations that allow hundreds of U.S. pork and poultry facilities to export to China after lapses threatening shipments to the world’s largest meat importer, which is China. The Chinese customs website showed that these registrations were renewed until 2030, but for hundreds of U.S. beef facilities, the registrations remain listed as expired. So, the renewals for pork and poultry are a relief to U.S. farmers and meat companies as they navigate trade disputes with major agricultural importers, including China and Canada, under President Donald Trump, and China’s customs website earlier showed registrations for more than a thousand U.S. meat plants granted by China under the 2021 Phase One trade deal had lapsed on Sunday, and that’s why they needed to be renewed because they were granted during that previous phase deal between Beijing and the first Trump administration.
(14:54)
That said, the non-renewal of the beef plants comes amid Beijing’s attempts to rein and beef imports as it grapples with an oversupplied domestic market. So, not as good news for the producers of beef in the U.S. Even, walk us through, I mean this is pretty detailed stuff, but walk us through what’s going on here and what’s happening and why it matters.
Even (15:17): Yeah, absolutely. So, this is definitely one to watch, and it’s a really great example of just how messy trade relationships actually are. There are a huge number of tiny technical moving pieces that keep the flow of goods moving, right? Certifications and approvals and phytosanitary records and all of these different, fairly nitpicky sort of technical documents that need to be in place. And in this case, what we’re talking about is a simple registration that’s required for anybody who wants to export a food product to China. So, as you noted, during the first Trump administration, during the trade war, a whole bunch of these registrations lapsed. And as part of the Phase One trade deal, China agreed to renew a whole bunch of those lapsed registrations, which effectively, at the time, reopened its market to U.S. pork, poultry, and beef. It was great news.
(16:13):
And that was a five-year registration, which means, through no real design, the timing just was right, that they lapsed and needed to be renewed over this past weekend, right? Trade tensions back at the moon. American exporters were pretty concerned that they weren’t going to come through at all. In the end, most of them have. The pork and poultry exporters are all now registered through 2030. That piece of paper doesn’t need to be touched again. The beef exporters are still kind of left in the lurch. And right now, it’s not totally clear what’s going to happen next, but there are now 390 U.S. beef exporters, or a roughly 4 billion U.S. dollar market hanging in the balance. And to be honest, I’m not optimistic that those registrations are going come through in the short term here. And that’s because for the last year or so, China’s domestic beef cattle farmers have been really struggling.
(17:08)
And the Ministry of Commerce actually has a safeguard investigation underway to attempt to determine whether China’s domestic beef cattle farming industry should get some protection from all global beef imports, right? So, this is already an area where China’s government is really keen to limit imports. And so now they’ve got sort of a handy kind of accidental way that they can just not act, right? And it really shows how easy it is to target agriculture in a trade war because you don’t even have to take action. There are so many different moving pieces that you can simply neglect to file one piece of the complicated paperwork and that, in itself, will get you to the end that you’re looking for.
Andrew (17:54): So, it sounds like you don’t really think the beef move is punitive per se, as part of the trade back and forth, but rather a convenient time for these registrations collapse so that China can better protect its domestic market at the moment. Is that what you’re thinking?
Even (18:11): Yeah. And I think, it’s convenient for the domestic market. It makes sense that maybe folks are going to slow roll this in the first place. But then, secondarily, it puts another bargaining chip back onto the tables. You can imagine when there’s a Phase One 2.0 trade deal, there may well be… this may be one of the things that gets included in that deal.
Andrew (18:34): Phase One 2.0. It’s going to do my head in just thinking about how that plays out. But we will talk about that in a minute because it does seem like it may be part of the discussion from the U.S. and China. But this sort of brings us to the wider positioning of the ag sector when it comes to the heightened trade tensions or the widening of the U.S.-China trade war, and not just kind of trade tensions between the U.S. and China, but also with Canada as well. So, just, again, to give people some context on what China’s done on this side, Beijing retaliated against U.S. agricultural exports in response to Trump’s second 10% tariff increase. So, remember we’re at 20% tariff hike in two 10% tranches on China since Trump’s come back into office. And so, at the beginning of March, in the second tranche of 10%, China retaliated by including a 10% and 15% counter-tariffs on a wide range of U.S. farm products.
(19:31):
So, some were 10%, some 15. They also targeted suspension of import license for key U.S. suppliers of soybeans and lumber, effectively blocking all imports of some of the largest traders. And they announced the ban on imports of Illumina gene sequencers, which Even assures me is related to ag. So, we’ll get to that part eventually. Then, on March 8th, in the middle of the two sessions, Beijing announced retaliatory tariffs on Canadian ag products as part of a finding of discrimination in its first-ever anti-discrimination investigation into Canada’s tariffs on Chinese EVs, steel and aluminum. So, everybody’s tariffing everyone. And these tariffs were much higher, 25% and 10% than the recent tariffs on the U.S., but they were in line with the tariffs that Canada imposed. So, those are the kind of the back and forth, the big moves. What does this tell us about Beijing’s trade policy and how they’re approaching these rising tensions, not just with the U.S. but with other trade partners?
Even (20:36): Yeah, absolutely. So, there’s a lot we can already say about what’s going on at the moment. First of all, Beijing’s retaliation against the U.S. has been very, very fast. Trump has now done two rounds of 10% tariffs on China. And in both cases, Beijing has announced its retaliation on the same day that those tariffs went into effect, right? And in 2018, there was monks of drag in between a U.S. measure and a Chinese measure, but that’s not the case anymore. But secondly, China’s taken a pretty moderate approach in its retaliation toward the U.S. So, Trump has done 10% across-the-board tariffs, twice, and that’s applied to all Chinese products, right? China’s tariffs only hit 15% at most. So, they’re staying below Trump’s max level of 20. And this is a sign that they’re not taking things lying down, but they’re also not trying to escalate.
(21:35):
Yeah, yeah. They’re only picking a few products. They’re going under the tariff level that the U.S. is doing. They don’t want to go scorch death and make it difficult for Trump to come to the table. And when you compare that against the approach with Canada, you can see that they’re holding back. So, with Canada, China used a totally new retaliatory tool. It’s the first time China’s ever done an anti-discrimination investigation. So, we’re learning how this kind of a trade investigation works in real time because we haven’t seen China do this one before. So, basically, they’ve determined that Canada’s tariffs on Chinese electric vehicles, steel, and aluminum were discriminatory. It took them six months to reach that conclusion. And once they reached that conclusion, they announced tariffs that were at the same level as the ones they found to be discriminatory. And those tariffs are really high, they’re 25% and 100%.
(22:32):
And so the Canadian agriculture products that got hit, got hit at the exact same level, at 25% and 100%. Does that mean that China is going to take a harder tactic with Canada? Maybe, but we’re not so sure because they also pushed out those tariffs at a really odd moment, right? It was on a Saturday in the middle of the two sessions, and it was a matter of hours before Canada’s ruling liberal party was about to hold the vote to appoint a new leader who, in the past couple of days, just replaced Justin Trudeau as prime minister. That’s the first change in leader that Canada has had since 2015. And the weird timing of this kind of suggests to us that Beijing might have been taking out the trash here, making sure that all of the punitive measures that were associated with the old administration, the Trudeau administration, and that kind of opens the door for maybe there could be a reset under a new leader.
(23:30)
And that’s kind of similar to how when Australia was frozen out for a few years, then they had an election. Albanese came into the PM role, there was a change in Party as well. There’s now a potential, a window of opportunity for maybe a similar reset here with the change in leader. And especially given how Trump has put pressure on Canada, there may not be a better chance for Beijing to create some kind of distance between the two countries.
Andrew (23:59): Yeah, that’s a good point. I mean, China does have a sort of history of using changes of government to reset relations. They did the same thing with Japan recently, same thing with UK. So, that’ll be an interesting one to watch. But we do know that, still, global trade tensions are very high, so we’ll see. They may not be able to help themselves, especially if the Canadians under Mark Carney, start tariffing China again. But I guess one question for you is why ag? Why does China use ag specifically in these trade? I mean, I know many countries are very protective of their agricultural sectors for sort of obvious reasons, right? It’s fundamental to the economy, it’s fundamental to society, be able to feed yourself. But why ag? Why does China use that specifically as a punitive measure against the U.S. and Canada, but more specifically against the U.S.?
Even (24:56): Yeah, absolutely. Well, first of all, China is just importing huge volumes of agricultural products from both Canada and the U.S. and a number of other countries. But for the most part, and I kind of hate to say this, as somebody who grew up in an ag state, these products are pretty much interchangeable from stuff that you can get from other trade partners. So, that’s not true of everything that China imports from the U.S. or Canada. Broadly speaking, the U.S. is a very high-cost, high-quality supplier of various technical goods. And if China can make that thing for itself or get it elsewhere, it probably will. But in the case of agriculture, the U.S. is a low cost, pretty high-quality bulk supplier. And there are many other suppliers of bulk agricultural commodities that China can look to.
(25:50):
So, it’s less likely to get kind of pinched in. But, secondly, agriculture products are kind of unique. It’s pretty easy, because they’re a natural product, to find something that might be amiss. And so not in these cases, but often when we see tariffs on agricultural products or other kinds of trade barriers, they’re related to a random phytosanitary issue, right? There’s been a pest or disease or some kind of impurity that’s been found. And the sad truth of it is that if you look really hard at any kind of natural product, you’re going to find that. So, sometimes ag products are just… they’re an easy target because it’s straightforward to find a reason to block them. But the final reason that we keep seeing this coming up, and particularly in the U.S., is the farmers are a huge voting bloc. And that’s true in most democracies.
(26:41):
Like, if farmers get mad about something, it tends to have a political impact. And their votes tend to count a bit more per capita in the U.S. because they’re farming in those lower population density like higher electoral votes states. So, by blocking products that impact the livelihoods of folks in Texas, in Georgia, or House Speaker Mike Johnson’s home state of Louisiana, the largest seafood exporter, or my home state of South Dakota, where Senate Majority Leader John Thune is also from, that means a long list of Trump’s republican allies, including many of the folks that are going to fund themselves up for reelection in 2026, they’re getting shouted out of town halls right now.
Andrew (27:25): Yeah. Well, China is… Their response to us actions, whether or not it works and gets them the ultimate outcome that they want is very, very calibrated, right? It is very specifically designed to put pressure on very specific pain points. And agricultural producers is one of those pain points, this shows, and we’ve talked a little bit about that response and how they become quite savvy, frankly, in their back and forth with the U.S., but in terms of trade tensions and other economic, sort of coercion measures. But it brings up sort of a bigger question to me, which is what are the implications of these tariffs overall and China’s own tariffs and counter-tariffs for food security? But maybe even before you answer that question, so we will circle back to it, can you talk a little bit about food security, more generally, in China, and why it’s such a big deal in the China context?
Even (28:24): Yeah, absolutely. Food security has been a huge deal for China’s leaders for decades and probably centuries, right? China right now has about 20% of the world’s population, but only about 7% of its farmland and fresh water, which has always made keeping everybody fed a bit of a challenge. And that challenge has been manageable for the past few decades, but China’s leaders still really don’t want to take their eyes off that ball. And so we consistently hear Xi Jinping refer to food security as guó zhī dà zhě, a strategic national priority. And he frequently talks about how rural issues like farming, but also rural development, should be the Party’s top priority. And in the U.S., we typically see this reported out in stories about how China has built up massive state reserves of stuff like grain and pork or that policies have come out where officials have forced farmers to rip down greenhouses or rip out their orchards and plant wheat or rice instead.
(29:30):
So, it’s really easy to come away with that, with the sense that Beijing is so jittery about food security and especially about corn and rice and oil seeds and things like that, that they won’t do anything to upset that delicate balance. But that’s demonstrably false, right? Because, over and over again, for the last decade, we’ve seen them disrupting trade with the U.S. and Canada and Australia for these products. So, a lot of analysts have settled on, well, the big priority here must be self-sufficiency. They want to completely get rid of imports. But that’s also demonstrably false, right? Because China’s importing huge volumes of these staple crops. They don’t count imports for livestock feed against the self-sufficiency tally. They’ve invested heavily in Belt and Road relationships to expand ag market access for developing countries.
(30:24)
So, we know that leaders might like the idea of being totally self-sufficient in food and ag, but they’re not really like deluding themselves into thinking that it’s possible. Ultimately, there’s no question, this is a big priority, but I think that a lot of the analysis of what Chinese officials are doing here is actually getting it wrong.
Andrew (30:45): But, at the end of the day, I talked about this I think on the pod before, just sort of security generally obviously is becoming such a bigger governance issue under Xi Jinping, right? Specifically, he has said security leads to development rather than development leading to security, which is how that formulation went for years under the era of Reform and Opening — We’re going to just develop, grow, get richer. That’ll give us the resources we need to become secure. And now Xi Jinping basically saying, “Listen, we got to put security first and that will allow us to develop,” and that means resource security, energy security, food security, financial security, and tech security. I think you’re right, a lot of people sort of misdiagnosed exactly what they’re trying to do and why, but giving these segments of what these aspects of security, right and solid, are super important.
(31:43):
It’s like you said, I mean, in some respects, they can’t do it, right? They want tech security, but they can’t just snap their fingers. They want food security. And part of the reason that they want it so badly is because they felt so insecure for years and years and years on that front. But that’s a major driver of thinking of their official thinking. And that sort of brings us back to the question that I asked earlier, which is, what are the implications of the tariff back and forth for China’s food security efforts?
Even (32:11): Yeah. So, in practice, I think the best way to look at what Beijing is trying to do on food security, like what’s achievable, is they’re trying to maximize their food supply capacity. And what that looks like, it gives sort of a sense of self-sufficiency, right? They’re trying to protect enough farmland that they can feed themselves under an emergency scenario, and that China doesn’t become overwhelmingly dependent on imports under business as usual. They’re investing in tech, in crop research, in better farm equipment to try to make production more efficient. Incidentally, some of that might also boost production capacity of food and ag products across the global south too. But, really, they know that imports are going to be coming in, and a big part of maximizing food supply capacity, independent food supply capacity has been forcing state-owned grain traders to diversify their supply relationships away from really huge low-cost suppliers of key agricultural products, like the U.S. and Canada, and toward a much longer list of small and medium-sized ag exporters.
(33:23)
Or in some cases, it’s sources where things were a little bit more costly or annoying, like the logistics were annoying in South America, in Eastern Europe, in Central and Southeast Asia, maybe, eventually, Africa as well. So, this is where the impact of these trade wars gets really interesting because it used to be if Beijing wanted COFCO to go out, or other major grain trading companies to go out and, please, for the love of God, develop some kind of other relationship with other suppliers beside the U.S. and Canada and Australia, right? Officials had to like beg SOEs. And for the most part, SOEs didn’t want to play ball because they like to make money too, and they don’t want to have to rebuild the giant supply chains either, right?
(34:14):
So, it used to be that the only tool that officials had was really to wait around and try to find some kind of other justification to disrupt trade with major trade partners like the U.S. or Canada. They had to wait until there was a crop or livestock disease. They had to wait until they could identify something that they could credibly say maybe was dumping and imposed tariffs for that reason. But once the first Trump administration came on and started really breaking down some of these trading norms, then all bets were off. And in mid-2018, Beijing did something that nobody thought it was going to be able to do, which was impose really high tariffs in retaliation to U.S. trade war era policy on a whole bunch of products, including soybeans. And the broad consensus at the time was that China’s pig farmers couldn’t go without American soybeans.
(35:09):
And then, in early 2019, China blocked market access to Canadian canola, and that was part of the retaliation against the detention of Huawei CFO Meng Wanzhou. So, it really was like a new era in how aggressive and directly retaliatory like political China was able to be in blocking agricultural commodity trade. There was no longer really a pretense of another justification for these moves, right? And because these two measures blocked a huge portion of China’s oil seed imports, it forced traders to seek out other sources finally. So, if you look at the data, what you see is, in the mid-2010s, the U.S. and Brazil supplied roughly the same amount of soybeans into China. But in 2018, that starts to diverge, and Brazilian imports are skyrocketing while U.S. imports crater.
(36:01)
And the upshot is that by 2023, China was getting about 70% of its soybeans from Brazil, and well below 30% of its soybeans from the U.S. Basically, by breaking trade rules and norms and waging a trade war, Trump, in his first administration, created the conditions that finally allowed China’s officials to swing their market power around in the way that they wanted to and force traders to find new sources for some of these commodities, and to diversify away from just the U.S. and its closest allies for food.
Andrew (36:39): Yeah, that’s interesting that… Of course, the first Trump administration upended a lot of trade norms, as you said, forced, really, Beijing on the back foot, but in a way that they ultimately look to sort of play somewhat to their advantage or at least make the best of a bad opportunity. But this time, right? Second Trump administration, Beijing’s better prepared or presumably, right? They’ve seen the movie before, this is the sequel. In that context, what do you think Beijing is thinking about what happens next when it comes to their approach to ag and food security? And then we’ll talk a little bit about trade.
Even (37:19): Yeah, that’s right. So, since 2018, Chinese government has spent the past six or seven years investing heavily in its food security strategy. And that looks like deepening and expanding trade relationships, building better shipping and logistics infrastructure all over the world, investing in the domestic farming sector, building larger plots of farmland, rolling out better fertilizers, crop research. They’ve approved new genetically modified corn and soybean varieties. And all of that adds up to a lot more confidence than the first time around. That food security is in hand and that food prices are going to stay manageable no matter what happens with the U.S.-China relations.
(38:01)
And it’s worth noting, for some of our audience here, that while the U.S. and a lot of places around the world have been struggling with inflation, China’s actually been struggling with the opposite, with food price deflation over the past couple of years. Unlike the states, China’s leadership might not mind if food prices float up a little bit as a result of the tariffs. That would be income-boosting for domestic farmers. So, there, we get back to consumption in a kind of a circuitous way. But there’s also another way that China’s been diversifying its sources of food supply that I think is worth mentioning here. Folks that work in this space are aware that the Chinese word for food security is liángshí ānquán, directly translates as grain security.
(38:45)
And for years, China was really focused on grains as the foundation of food security policy. And that makes sense when you’re among one of the largest population lower-income countries, but that no longer really makes sense for China anymore in 2025. And so, what you’ve seen in just the past couple of years is that Xi Jinping has started to talk about a broader concept of food. And what that entails is expanding how China’s government supports food security across a much wider range of stuff than just grain.
(39:22):
That’s about planning and monitoring food supply and prices in a way that better reflects what the modern Chinese diet actually is, looking at veggies and eggs and milk and meat and kind of planning ahead where the supply of that is coming from. But it also includes taking advantage of China’s pasture land in places like Qinghai to produce more meat and dairy. It includes expanding fish farming domestically, and then also fishing activity in the open ocean to sort of make the best of a challenging food security situation by getting more fish and aquatic products that are also self-supplied, but just from the open ocean. And it also includes a lot of sort of pioneering research and development into high-tech new foods.
(40:10)
That’s stuff like new proteins, like beyond burger, right? But it’s also things like using novel biomanufactured proteins for livestock feed. And if that sounds like sci-fi to you, I should say that they just mentioned that in an action plan on livestock feed that came out in January. So, there’s a real concerted effort to explore what China’s existing very large fermentation in biomanufacturing capacity could mean for food security. Something like that would be a total game changer. If it was possible to engineer microbes that would grow something suitable for livestock feed in a tank, that could plausibly be a path for China to wean itself off of the imported sources of livestock feed protein, which is soybeans altogether, right?
(41:02):
And unlike people who are a bit squeamish about meat grown in the lab, pigs and chickens are not going to be anywhere near as fussy about whether their feed came from a field or a tank. So, when you start to consider that that is where the heads of officials are currently at, right? Xi Jinping is talking about that. The policy documents, the action plans on livestock feed are talking about that. The pieces of a new possible front in the trade and sort of tech war come into focus, right? Because, if China figures out how to start producing livestock feeds from genetically engineered microbes in tanks at scale, that transforms the way that the global commodities markets are working. And it would be bound to raise a lot of questions in a lot of concerns. Already, Chinese innovators are developing new GM crops and getting them approved for planting, not just at home but in other countries.
(41:59):
And I wager it’s really only a matter of time before the West starts to raise the same sort of questions about safety concerns of Chinese-developed genetically modified organisms that China used to raise about Western ones. If you ask me what’s keeping me up at night as the trade war starts to hit agriculture, it’s whether this current round of trade tensions will spill over into ag biotech. We suggested this was coming up top, right? Because in some respects it already has. Companies like China’s BGI was already targeted by the BIOSECURE Act, which didn’t get through ultimately, but it could come back. And the U.S. gene, I guess biotech firm, Illumina, just landed on China’s unreliable entity list, and it caught the ban in its gene sequencers being imported into China. But both of these companies’ products, they’re best known for their human health implications.
(42:55):
But both of these companies products are widely used in agricultural, genetic, and crop research. So, as soon as the trade war, if it starts to lead to scrutiny around these activities and the applications and data, biotech companies, inevitably it’s going to start touching on agriculture as well. And we know that this can be really controversial because when you look at a company like Monsanto, for example, which ultimately became so notorious that it abandoned its brand name after it was acquired by Bayer, it’s not hard to imagine that a Chinese ag biotech giant that starts competing globally could end up equally notorious.
Andrew (43:36): Yeah, I mean that would be quite a turn. And we talk about Chinese innovation all the time and how they’re wanting to innovate and build tech. I mean, ag is definitely a part of that. And so, there may be moves in this ag… I mean, obviously people think about ag, and they think, oh, it’s like an old school industry, but there’s some really cutting edge technological developments happening and it could really impact how China sort of fights back against the U.S. But I just want to round out with you gave us a lot of food for thought on where this might go on the ag space, in the food space generally, but what about the overall trade front? What are you watching in terms of how China might be approaching things and what the next developments might be between the U.S. and China?
Even (44:21): Yeah, definitely. The next big milestone that we’re watching in the U.S.-China trade war front is around April 1st and 2nd. Trump requested a big package of reports under the banner of the America-first trade policy. And those are going to land, many of them, almost all of them are going to land on April 1st. And he’s repeatedly indicated that he plans to act on their recommendations on April 2nd. And so, at that point, what it also means is that Beijing can be fairly confident that the White House has all the cards on the table, at least in the initial volley of the trade war. So far, Beijing has retaliated almost immediately, right? Within hours or minutes after each new tariff or measure is announced by the White House. I think it’s fair to expect that April 2nd and 3rd, depending on where you are in the world, is going to be a pretty bombastic day in terms of trade retaliations.
(45:20):
And it’s pretty likely that any Chinese retaliation will hit agriculture products again, and they might get hit even harder. It’s already a major target at low tariff levels. So, those could go a lot higher, which would amp up pressure on Trump’s base. And it’s also worth noting that Trump has said he might apply tariffs to U.S. imports of food products. And it could surprise you to learn, but the U.S. also imports a lot of food from China. A lot of it is processed stuff like shrimp or fish sticks where China might have imported the meat and then processed it, packaged it, frozen it, and re-exported it. So, you can imagine how, if products are going back and forth, it could be hit by two different separate rounds of tariffs while crossing borders. So, look for an exciting time at the supermarket. But the key thing here is that once the dust settles, there’s going to be a chance to strike a deal, hopefully, right? Because once all of these cards are on the table, then maybe the two sides will have the confidence to start shaping something like a Phase One trade deal, 2.0.
Andrew (46:29): Yeah. I’m glad you ended there because it’s something we’ve been hearing from the Chinese side is maybe the place to start is just taking the Phase One trade deal, looking at it, saying, “Let’s give this another go.” We know the U.S. administration’s reviewing China’s performance or adherence, or lack thereof, I should say, to the Phase One trade deal. So, it will be interesting if they dust that off and use that as a starting point. But there’s, as you say, a lot of things are going to happen before we really get into any serious negotiation, there’s going to be a lot of dust that needs to settle. An ag will definitely be a part of it. And we’ll be watching it and monitoring and analyzing it along the way.
(47:13)
So, I am so glad to have you on the pod today, Even. This has been a fascinating discussion, really helpful and enlightening for me. And we’ll look forward to having you on again soon, I’m sure, to talk about all these issues as I develop.
Even (47:30): Yeah, absolutely. It’s great to join you on the pod and very much welcome inquiries. In the meantime, get in touch because we’re following this stuff on a daily basis. And if you want to compare notes about where things are going, not a lot of people out here are too excited to do that, but I’m definitely one of them. So, get in touch, please.
Andrew (47:50): Yeah, good plug. Good plug. Well, as always, we’ve covered a lot of ground this week, and we’ll be there next week to cover all the latest out of China. So, thanks so much, Even. I appreciate it. And thanks everybody for listening. We’ll see you next time. Bye, everybody.
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