How much economic pain can China tolerate in the trade war? Donald Trump is about to find out

A buying frenzy over pork in Shanghai might be a sign of economic trouble or an after-effect of the swine flu epidemic. Either way, it raises questions about the Chinese people’s capacity for withstanding the fallout from the US trade war

Chiu-Ti Jansen

Published: 3:00am, 4 Sep 2019

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On August 27, American hypermarket chain Costco opened its first China store in Shanghai, but had to shut early due to “safety considerations”, after eager shoppers crowded aisles and worked themselves into a frenzy over heavily discounted Mao-tai, nuts, croissants – and cuts of pork.

Pork is a staple food in China and a key indicator of food price inflation. Worryingly, pork prices have risen to new highs in recent weeks.

On August 20, the government of Putian city in Fujian province announced a subsidy of 4 yuan (US$0.56) per kg of pork; under the programme, locals with valid identity cards would be able to buy up to 2kg of pork. Yet, instead of assuring the public, the announcement fed anxiety among Chinese about returning to the days of meat coupons (which were introduced in the 1950s and only phased out in the 1990s).

While such fears are overblown, if there is such a thing as a national psyche, I am sure pork is embedded in China’s. This is a country where a full-page feature on President Xi Jinping’s recent visit to Gansu province and his love for the Chinese populace mentions his understanding of ordinary people’s deep longing to “eat meat”.

The Costco phenomenon and runaway pork prices have renewed debate about China’s consumption. Xinhua has rhapsodised about the opening of the hypermarket in Shanghai, saying it “reflects the vitality of the Chinese consumer market”.

Global Times , in an op-ed article headlined “Costco’s opening in China defies US attempts at decoupling”, praises the US retailer for defying President Donald Trump’s order to leave China.

However, Canadian newspaper The Star argues that the Costco frenzy shows the limits of Chinese nationalism amid the raging trade war with the US: “In China, like in many places, the appeal of a good deal often overrides patriotic allegiances.”

Li Guangdou, a Beijing-based brand consultant, sees troubling signs in the news story of “uncles and aunties fighting over a piece of pork” in Shanghai. “In a big city that is rich in commodities and tops GDP per capita rankings, this phenomenon of bargain hunting illustrates how people’s wallets are shrinking and their spending habits are changing.”

At the outset of the US-China trade war, economists sparred over which country could better withstand the economic pressure by presenting scenarios and data. Lately, analysts have been talking about the psychological breaking point on each side.

Daniel Chen, a China-born violinist turned YouTube commentator, argues that the Chinese are better positioned than the Americans to withstand the pressure of the trade war. Whereas the Americans would vote out a president if they had to “go from eating beef to eating pork ... the Chinese people have no problem going from eating meat to eating grass”.

Seen in this light, the trade war looks like a test of endurance.

The Chinese consume 700 million pigs annually, half the world’s total. Pork is their favourite meat, accounting for 60 per cent of their meat consumption.

According to the National Bureau of Statistics, livestock prices rose 18.2 per cent year on year in July, of which pork prices rose by 27 per cent and lifted the consumer price index by 0.59 percentage points.

Many blame the government’s handling of the trade war. In August last year, the confirmation of the first case of African swine flu in China coincided with the lifting of a ban on pork imports from Russia. This has fanned speculation that the epidemic originated in Russia and is spreading in China as a consequence of substituting Russian pork for US meat; Chinese officials have disputed this, however.

Even Trump can’t halt march of overseas workers and their money flows

The State Council has announced that it is increasing financial support for the recovery of the pig industry and enhancing epidemic prevention efforts. However, disease control measures are hampered by the millions of small pig farms and the practice of transporting the animals over large distances, sometimes more than 2,000km.

It certainly does not help that soybeans are a staple feed for hogs. According to the Ministry of Commerce, in the first four months of the year, China’s soybean imports fell 7.9 per cent year on year, with imports of US soybeans plummeting more than 70 per cent. Meanwhile, Brazilian soybean prices have shot up 70 per cent in the past two months.

Before African swine flu became a nationwide epidemic, China had imposed retaliatory tariffs on 62 per cent of US pork imports. Last month, China announced it would stop buying US agricultural products in response to Trump’s tariffs on a further US$300 billion in Chinese goods; the farm belt states are understood to be Trump’s Achilles’ heel in his re-election bid.

However, before Trump’s new tariffs came into effect on September 1, China stepped up its purchases of US pork: it imported 1,861 tons of pork in the week beginning August 16, up from 220 tons the previous week. It also purchased 10,200 tons of US pork in the week starting August 2, plus 9,589 tons of US soybeans in the week beginning August 9.

With the Mid-Autumn Festival approaching, pork prices are expected to soar, the result of seasonal demand outpacing replenishment of breeding stock in China. In fact, analysts believe the trend will continue into next year.

Whatever he says, Trump doesn’t care about Hong Kong either way

Liang Ming, a Ministry of Commerce researcher, recently caused an uproar when he said China was “probably in the most comfortable position” economically and would come out of the trade dispute stronger.

While the hullabaloo over the comment suggests a disconnect between official rhetoric and public perceptions of the trade war, we mustn’t forget that pain, like happiness, is relative. If Chen – who came of age during the Cultural Revolution – is right, Trump should not underestimate either the extent of the American farmers’ economic pain or the Chinese people’s capacity for “eating bitterness”.

Chiu-Ti Jansen, with advanced degrees from Yale and Columbia, is the founder of multimedia platform China Happenings and a former corporate partner of international law firm Sidley Austin

Correction: An earlier version of the story stated that the increase in livestock prices lifted the consumer price index by 0.59 per cent. This is incorrect. The consumer price index was lifted by 0.59 percentage points.

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