It’s all about soybean. Almost half of American soybean exports are bought by China, the world’s largest consumer of the oilseed, which explains soybean’s role as an obvious candidate for a trade-related attack by China.

The recent buildup of economic tensions has also served to highlight the U.S.’ record trade deficit with China – an estimated staggering $375.2 billion. Certainly, China’s recent transgressions regarding intellectual property rights and alleged currency manipulation have only added to the tension.

So, when President Donald Trump committed to introducing 25 per cent and 10 per cent tariffs on steel and aluminum imports respectively in late February, he merely formalized trade-related tensions that were becoming more palpable by the day. One of the U.S.’ major points of vulnerability to an economic attack, previously buried under mounds of unwieldy investment and trade treaties is now out in the open: soybean.

Out of total American agricultural exports to China last year valued at around $20 billion, soybean alone accounts for more than $12 billion. The potential loss of these exports poses a massive threat to the agricultural sector in the U.S., which is still reeling from low prices and is poised to face declining net farm incomes in the near-future.

Soybean has been pushed back into the limelight as China has now retracted commitments to buy 366,000 tons of U.S. soybeans in the current season, cut planned purchases by as much as 66,000 tons (according to a Bloomberg report) for the following year, and has enacted a 25 per cent tax on U.S. soybean. China has also approached the World Trade Organization (WTO) in response to U.S. tariffs, as stated by its commerce ministry.

Grain markets have already started reflecting the precarious position of soybean. After a decline of almost 20 per cent in soybean prices since trade tensions hardened in March, a further drop throughout July is predicted by many economists. The expectation that China will now cancel orders amounting to around 1.1 million tons of U.S. soybean is only making matters worse.

China does not seem to be backing down either. A state-owned newspaper, China Daily stated: “The Trump administration is behaving like a gang of hoodlums with its shakedown of other countries, particularly China.” The same newspaper hints at more retaliatory action, stating:

“While it (China) has endeavored to avoid confrontation by engaging in sincere dialogue with the U.S. in recent months, that earnestness has not been reciprocated…there should be no doubting Beijing’s resolve, it will not give in to blackmail…” China’s defiance could also be linked to its planned expansion of agricultural trade along the route of the much talked-about Belt and Road Initiative.

The upheaval caused by these trade tensions will have tangible impacts on communities across the world, particularly the U.S. farmers in the Midwest, home to some of President Trump’s largest electoral constituencies.
But what does this upheaval entail for India?

In the short term, India could capitalise on the situation by partially filling the vacuum in soybean supply created by order cancellations and tariffs targeting the U.S. Rajiv Kumar, the current vice-chairman of NITI Aayog in fact floated the idea of India fulfilling some of China’s demand for soybean and sugar at the India-China Strategic Dialogue held in Beijing in April.

In June, China’s Cabinet also announced a cut in tariffs on Indian soybean exports, among others, from July 1 onwards. These developments seem to point to a bigger role for India as a critical agricultural exporter to China.

However, as global trade contracts in the long term, the competitiveness of and demand for Indian exports are likely to be hit. The U.S. is also planning to review the General System of Preferences (GSP) which allows certain imports from India without any tariffs.

This measure could expose billions of dollars of Indian exports to harsh tariffs. In May, the U.S. also filed a counter-notification against India for the first time in the WTO’s history, alleging that India’s market support price (MSP) program for certain agricultural products surpasses permissible levels of domestic price distortion. This trend in U.S. policy could entail more aggressive protectionist actions targeting India in the future.

As Midwestern farmers, DC policy wonks, and Indian economists alike restlessly await China’s next move, soybean, the humble oilseed, sits in the middle of two warring economic superpowers.

The writer is a student at Duke University majoring in Political Science and Public Policy Studies, and a former intern at Brookings India.