On Monday 18 June this year, the Peak Pegasus cargo ship set sail from the Port of Seattle on the northwest coast of the US. Its destination; China. Its cargo; 70,000t of American soya beans valued at $20m.

A bulk cargo ship like any other, the Peak Pegasus has found itself in the limelight as one of the first casualties of the escalating trade war between the US and China.

In the three-week timeframe it took the Pegasus to reach its final destination at the Port of Dalian off the northeastern coast of China, its soya bean cargo had found itself the victim of retaliatory tariffs from Beijing of 25%.

The ship has found itself circling the waters of the Yellow Sea between mainland China and the Korean Peninsula for over a month now as its owners decide what to do

These tariffs mean the cost of the boatload of US soya beans sitting in the cargo hold of the Pegasus has risen from $20m the day it left Seattle to $25m by the time it reached the Port of Dalian. As a result, the ship has found itself circling the waters of the Yellow Sea between mainland China and the Korean Peninsula for over a month now as its owners decide what to do.

With the tariffs now in place, the 70,000t of soya beans sitting in the Pegasus have suddenly become too expensive to find a buyer in China today. Soya beans arriving from South America are now much better value for Chinese buyers than shipments coming from the US.

For the owners of these soya beans it leaves them in a difficult place as the potential losses on this shipment could be huge.

Tit-for-tat

The tit-for-tat escalation we have seen in trade tariffs between the US and China over the last six months is finally starting to materialise and impact traditional trade flows, such as the flow of US soya beans into China.

China has consistently been the largest buyer of US soya beans, with end uses ranging from cooking oil to livestock feed. Last year, US soya bean exports to China were valued at almost $13bn.

However, US president Donald Trump is clearly prepared to risk this relationship in a bid to reshape the trading relationship between the world’s two largest economies.

For global agriculture, Chinese tariffs on US soya beans is likely to lead to a realignment of traditional trade flows. US soya beans are going to have to find a new home if Chinese buyers look to South America for future supplies.

President Trump has already targeted Europe as a potential buyer of extra tonnages of soya beans but the import requirements in the EU are likely to be far less than China, where there appears an unquenchable appetite for the protein crop.