The U.S.–China trade war has fundamentally altered traditional dry bulk freight flows, particularly in grains, once a core employment base for Panamax and Supramax vessels on the U.S.–China route. This week, Allied Quantumsea Research reviews how these dynamics are unfolding as we enter the second half of the year.
Macroeconomic Backdrop in China
From January to June 2025, China’s economy faced mounting headwinds, with pressures intensifying through July and August. Growth momentum slowed sharply as manufacturing activity slipped to multi-year lows. In August, the official manufacturing PMI contracted for a fifth consecutive month at 49.4, highlighting persistent weakness in industrial demand.
The steel sector reflected this softness. Crude steel output was scaled back, with June production down 9.0% year-on-year to 84 million tonnes. July fell further to around 80 million tonnes, the lowest monthly level so far in 2025. At the same time, mills redirected surplus supply abroad: steel exports rose to 10 million tonnes in July, increasing year-to-date volumes to a record 68 million tonnes.
Despite weaker steel demand, iron ore imports remained buoyant. After surging to 106 million tonnes in June, imports stayed above the 100-million-tonne mark in July at 105 million tonnes. Even so, cumulative volumes for January–July slipped 2.3% year-on-year. Coal imports, by contrast, eased: in the first half of 2025, they totalled 222 million tonnes, down 11% from the same period in 2024. July alone saw a 23% year-on-year drop, and industry forecasts suggest further declines in the second half as domestic coal production remains strong and the import price advantage narrows. Against this backdrop of softer demand and shifting trade flows, policymakers have moved to tighten their grip on the sector. A late-August planning document outlined new cuts to steel output over 2025–26, targeting outdated furnaces and addressing chronic overcapacity. The same plan included measures to stabilize iron ore and coking coal markets while tightening oversight of exports. In parallel, China’s newly launched mega hydropower project in Tibet briefly lifted steel and iron ore sentiment in July, though long-term demand impacts remain uncertain. Key suppliers such as Australia and Brazil are monitoring these developments closely for potential impacts on future shipment volumes.
Lack of Chinese Engagement with U.S. Grains
China’s disengagement from U.S. grain markets has become increasingly evident. In August 2025, Chinese buyers made no bookings for U.S. soybeans for fourth-quarter shipment, a stark departure from earlier years when China absorbed more than 60% of U.S. exports. Instead, Beijing secured large volumes from Argentina and Uruguay for 2026 delivery, while Brazil’s record 2024 harvest and expanded acreage continue to support low-cost, year-round shipments. Argentina’s recovery from drought has further boosted global supply, and China has broadened sourcing to Russian wheat and Kazakh coarse grains, underscoring its intent to reduce exposure to U.S. policy risks.
This shift is more than seasonal. Trade war frictions, persistent tariffs, and concerns about political retaliation have hardened Beijing’s stance against high-profile U.S. contracts. The result is a structural sidelining of U.S. farmers, with China, the world’s largest soybean importer at over 100 million tons annually, embedding South America and Eurasia at the core of its procurement strategy. For U.S. exporters, this accelerates a necessary pivot toward Southeast Asia, South Asia, and the Middle East as the next centres of demand growth.
Tariff disputes remain part of the backdrop. On August 11, President Trump signed an executive order delaying for 90 days a planned sharp increase in tariffs on Chinese goods, while keeping existing duties of roughly 30% on Chinese imports and about 10% on U.S. exports in place. Later, the U.S. Court of Appeals for the Federal Circuit ruled 7–4 that most of Trump’s global tariffs were unlawful but allowed them to remain until October 14, pending a Supreme Court appeal. For freight markets, the combination of Chinese disengagement from U.S. grains and ongoing tariff uncertainty ensures that costs, routing decisions, and long-term planning remain volatile.
China’s Soybean Sourcing
China is deepening its soybean diversification through sizeable forward purchases from Argentina and Uruguay, indicating a more deliberate long-term shift in sourcing. Purchases could reach up to 10 million metric tons for the 2025/26 season, with 2.43 million tons already booked for delivery between September and May 2026. This builds on the five million tons China imported from the two countries between September 2024 and July 2025, reflecting both bumper harvests in Argentina at 50.9 million tons and Uruguay at 4.2 million tons.
At the same time, political theatre continues to shape the trade backdrop. On August 11, President Trump publicly urged China to quadruple its soybean purchases from the United States, but analysts remain sceptical that major new sales are possible without tariff relief. U.S. farmers, facing mounting financial pressure, continue to lobby Washington for a purchase agreement.
Meanwhile, soymeal flows point to a more complicated picture. In July, Bunge chartered a 30,000-ton shipment of Argentine soymeal to China, the first such bulk delivery since Beijing approved imports in 2019. The optimism proved short-lived, however, as the cargo was diverted to Vietnam for commercial reasons. With China still heavily stocked on soybeans and imports running strong, the near-term prospects for Argentine soymeal in the Chinese market appear limited.
South American Infrastructure Expansion
China is reinforcing its diversification push by investing in the infrastructure that makes alternative suppliers viable. The expansion of Brazil’s Santos port from 4.5 to 14 million tons of annual capacity, along with deep-water port projects in Peru and expanded rail networks across the Southern Cone, are designed to smooth logistics, reduce reliance on single routes, and guarantee more reliable export flows over the long term.
U.S. Export Reorientation
With China stepping back as the dominant growth market for U.S. agricultural exports, American producers are increasingly redirecting flows toward Southeast Asia, where tariff incentives, free trade agreements, and rising food security needs are reshaping demand. Governments across the region are also seeking to reduce reliance on Black Sea origins while meeting rapid growth in consumption and industrial use.
Indonesia, for example, has signed a five-year memorandum of understanding with its flour milling association (APTINDO), committing to import at least 800,000 metric tons of U.S. wheat in 2025, scaling up to 1 million metric tons annually through 2030, in a deal valued at roughly $1.25 billion. This helps fortify Indonesia’s food security and strengthens ties with U.S. agricultural suppliers amid broader trade negotiations.
Vietnam has pledged more than $2 billion in U.S. agricultural imports over the coming years, including deals worth $800 million in Iowa alone, and is implementing a nationwide switch to E10 ethanol-blended fuel by 2026, both of which are expected to boost demand for U.S. corn and ethanol. Together, these commitments across Southeast Asia are making the region one of the fastest-growing corridors for U.S. grains and oilseeds, driven by policy incentives, trade realignment, and rising structural demand.
Freight Market Implications
For dry bulk shipping, the implications are significant. The decline of U.S.–China grain flows alongside the strengthening of South America– China and U.S.–Southeast Asia trade corridors is reshaping vessel deployment strategies. The Ultramax, Supramax, and Panamax segments, once heavily reliant on U.S.–China soybean volumes, are undergoing a structural redeployment of tonnage into new geographic patterns.
As these trade realignments take hold, dry bulk shipping is entering a phase of greater geographic diversification. South America is consolidating its role as China’s dominant grain supplier, while the U.S. increasingly targets demand growth in Southeast Asia.
Looking ahead, the next four quarters will be shaped not only by these shifting trade flows but also by regulatory uncertainty. In particular, the pending enforcement of USTR rules on Chinese-built and Chinese-owned dry bulk vessels calling at U.S. ports will be a critical development for market participants to monitor.
Data Source: Allied