Learning From History And Modeling: Chinese Trade Retaliation Choices

An interesting symposium in the 2nd Quarter 2018 issue of Choices, published by the Agricultural and Applied Economics Association, deals with the impact of Chinese trade retaliation aimed against US agricultural exports.

Some reading to contemplate this graph by:

Source: Slok, “Global markets: US overheating and Treasury supply pushing US rates up. Trade wars and Turkey pulling US rates down,” Deutsche Bank, September, 2018.

What Have We Learned from China’s Past Trade Retaliation Strategies? (pp. 1-8)
Minghao Li, Wendong Zhang and Chad Hart

Theme Overview: U.S.–China Trade Dispute and Potential

Impacts on Agriculture (pp. 1-3)
Mary A. Marchant and H. Holly Wang

Predicting Potential Impacts of China’s Retaliatory Tariffs on the U.S. Farm Sector (pp. 1-6)
Yuqing Zheng, Dallas Wood, H. Holly Wang and Jason P. H. Jones

Impacts of Possible Chinese 25% Tariff on U.S. Soybeans and Other Agricultural Commodities (pp. 1-7)
Farzad Taheripour and Wallace E. Tyner

Upheaval in China’s Imports of U.S. Sorghum (pp. 1-8)
James Hansen, Mary A. Marchant, Wei Zhang and Jason Grant

Chinese Trade Retaliation May Diminish U.S. Wine Export Potential (pp. 1-7)
Amanda M. Countryman and Andrew Muhammad

China’s Potential Cotton Tariffs and U.S. Cotton Exports: Lessons from History (pp. 1-6)
Yangxuan Liu, John R. C. Robinson and W. Donald Shurley

Some interesting tidbits:

The estimated impact on US soybean prices by Zheng et al. (2018) is about 4%, using a conventional partial equilibrium model called GSIM (Francois and Hall, 2003), as does Taheripour and Tyner (2018), using the very well-known GTAP model. Assuming elevated elasticities only increases the price drop for US domestic prices by 5%.

Given US soybean prices have dropped by about 20% since the imposition of Chinese tariffs, one might conclude that the remaining 15% of price drop is due to weather and other factors (which include the dollar exchange rate). However, the durability of the 25% spread between US and Brazilian soybean prices suggests that tariffs are the primary driver.