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Estimating the market effect of a trade war: The case of soybean tariffs

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  • Adjemian, Michael K.
  • Smith, Aaron
  • He, Wendi

Abstract

In 2018, China retaliated to U.S. trade actions by levying a 25% retaliatory tariff on U.S. soybean exports. That tariff shifted market preferences so that Chinese buyers—who make up a substantial share of total world consumption—favored Brazilian soybeans. We use the relative price of a substitute (RPS) method to estimate that the resulting trade disruption effectively drove a wedge into the world soybean market, lowering U.S. prices at Gulf export locations by $0.74/bu on average for about five months, and increasing Brazilian prices by about $0.97/bu, compared to what would have been observed without the tariff in place. By the end of that period, world markets adjusted and the soybean prices in both countries returned to the ex-ante state of near parity, even if U.S. export volume did not recover until the end of the following marketing year. Our price impact estimate is substantially lower than subsequent U.S. government “trade aid” payments to American soybean producers: although actual payments to producers varied based on county-level differences, USDA’s nominal calculation of the commodity-specific payment rate for soybeans under MFP summed to $3.70 for two bushels produced over the course of two years. We project that USDA’s near-$8.5 billion in trade aid to U.S. soybean producers exceeded the tariff damage by about $5.4 billion. These difference could be attributed to USDA’s broader definition of “economic injury”, beyond the short-run price impacts we estimate.

Suggested Citation

  • Adjemian, Michael K. & Smith, Aaron & He, Wendi, 2021. "Estimating the market effect of a trade war: The case of soybean tariffs," Food Policy, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:jfpoli:v:105:y:2021:i:c:s0306919221001305
    DOI: 10.1016/j.foodpol.2021.102152
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    8. William Ridley & Stephen Devadoss, 2023. "Competition and trade policy in the world cotton market: Implications for US cotton exports," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(5), pages 1365-1387, October.
    9. Jason H. Grant & Shawn Arita & Charlotte Emlinger & Robert Johansson & Chaoping Xie, 2021. "Agricultural exports and retaliatory trade actions: An empirical assessment of the 2018/2019 trade conflict," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 619-640, June.
    10. Wang, Zhan & Hertel, Thomas W., 2024. "Soybean Trade between the United States, Brazil and China: Interactions between Global Trade Flow and Gridded Agricultural and Environmental impacts," 2024 Annual Meeting, July 28-30, New Orleans, LA 343755, Agricultural and Applied Economics Association.
    11. Yu, Shuo, 2024. "Short-Term Impact of the Trade War on U.S. Agricultural Commodities Futures Prices," 2024 Annual Meeting, July 28-30, New Orleans, LA 344060, Agricultural and Applied Economics Association.
    12. McKendree, Melissa G. S. & Saitone, Tina L. & Schaefer, K Aleks, 2020. "Cattle Cycle Dynamics in a Modern Agricultural Market: Competition in Holstein Cattle Procurement," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304380, Agricultural and Applied Economics Association.
    13. Singh, Bhupinder & Kaur, Gurpreet & Quintana-Ashwell, Nicolas E. & Singh, Gurbir & Lo, Tsz Him & Nelson, Kelly A., 2023. "Row spacing and irrigation management affect soybean yield, water use efficiency and economics," Agricultural Water Management, Elsevier, vol. 277(C).
    14. Jingyi Liu & Xiande Li & Junmao Sun, 2023. "China-Australia Trade Relations and China’s Barley Imports," Agriculture, MDPI, vol. 13(8), pages 1-13, July.
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    More about this item

    Keywords

    Farm subsidies; Market Facilitation Program; Trade aid; US-China Trade War;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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