The US-China tariff war will have a limited impact on the Chinese food economy

The trade war initiated by US President Trump puts a spotlight on the food and agribusiness (F&A) trading relationship between the US and China. In this report, we describe the worst-case scenario – that is, an absolute decoupling of the relationship – from China's perspective. We conclude that a de facto embargo on trade between the US and China would only have limited impact on China's food economy.

Imports make up 7% of China's food economy, but import dependency varies widely across products, as do the reasons why China imports these food products. Because agricultural land is scarce in China, the import of land-intensive, low-value-added feed crops like soybeans and alfalfa is necessary. This reliance on feed crop imports, though, ensures self-sufficiency in other land-intensive food grains like wheat and rice, which are of higher strategic importance.

China benefits from oversupply in coproducts in the global meat industries, such as offal meat and chicken feet, products valued by Chinese consumers but not so much by the rest of the world. Imports of these products keep a lid on domestic prices of offal meat and chicken feet. This is also why China imports animal protein when domestic supply shocks occur. For example, when China combated a severe outbreak of swine fever, the increased import of pork kept domestic pork price increases in check.

Another driver of China's food imports is the country's growing discretionary spending on more indulgent food items like cocoa, avocados, durians, and coffee. This is also true for branded consumer food and beverage products linked to their place of origin, such as whiskey, wine, high-quality beef, premium seafood, and certain cheeses.

US President Trump's trade war will have limited impact on China's food security. China's food staples market will more than stay afloat without the support of US farmers. Although China's animal protein industries are exposed to President Trump's tariffs via their dependence on imported feed crops, they can source more from other countries, rely on safety stocks from state reserves, and adjust feed rations to lower the use of imported feed crops accordingly.

However, discretionary spending on higher-value-added food might be negatively impacted by this ensuing trade war. When China's economy is negatively impacted by the slowdown of the global economy, China's consumers might be less inclined to buy these products. But this impact would be mostly indirect, as the US only holds a small share of China's imports.