President Trump is spoiling for a fight with China on steel and aluminum. But in China, it’s looking like a good year to pick a fight with U.S. farmers. The trick? Picking winners from losers in an agricultural trade war.

Trade tensions between Washington and Beijing are rising. The Trump administration slapped tariffs on solar panel and washing machine imports in January, and is poised to further restrict imports of steel and aluminum—markets in which China is a dominant player. U.S. metals executives were summoned to the White House on Thursday and told new curbs would be approved next week.

How might China respond? One possibility is soybeans. The country imported $12.4 billion of American soybeans last year to feed its pigs. China relies on these imports to keep feed prices low, which in turn keeps low the politically-sensitive price of pork. The meat is China’s staple protein, and a sizable component in household budgets.

But China is arguably now in a better position to handle disruption from American soy. Food price inflation has been running negative for over a year thanks to agricultural reforms, rebounding pork supply and a worldwide grain glut. The strengthening Chinese yuan is also weighing on the price of imported foodstuffs.

What little inflation there is in China—consumer prices rose 1.5% in January —has been more down to services. Housing, medical care, education and entertainment accounted for nearly 80% of the rise in China’s headline price index that month.


U.S. farmers’ leverage with China, meanwhile, is exceptionally weak. Farm debt is high and incomes are falling. Global soybean prices remain mired at barely half their 2012 peak. And Brazil, America’s main competitor for the Chinese soy market, is growing another bumper crop.

Soybeans are unloaded at dusk during a harvest in Buda, Illinois. Photo: Daniel Acker/Bloomberg News

Brazil’s 2017-18 soybean harvest is expected to clock in at 112 million metric tons, the second highest ever, according to Reuters’ February survey—surpassed only by last year’s record of 114 million.

Investors in American agricultural giants like Bunge and Archer Daniels Midland could take a hit if drooping Chinese demand harms American soy prices: China sucks up more than half of U.S. soybean exports.

One company that could benefit if soy tariffs lead to higher Chinese pork prices: Hong Kong-listed WH Group, which owns U.S. pork processor Smithfield Foods Inc. and is both a major importer of pork to China and a domestic pork producer.


China won’t be able to wean itself entirely off U.S. soy: It still needs to import a reasonable volume to tide it over during the Brazilian winter growing season.

But low food prices at home, a strong currency, and a world awash in South American soybeans gives it plenty of room to toy with soy.

Write to Nathaniel Taplin at nathaniel.taplin@wsj.com