Ag Policy Blog

Economists Look at Chinese Tariff Impact on Soybeans

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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A pair of Purdue University economists have run some analysis on the impact of a 25% Chinese tariff on U.S. soybeans and other agricultural commodities.

An article was published on the Choices website run by the Agricultural & Applied Economic Association.…

U.S. soybean exports would fall somewhere between 24% and 34%; production declines in the U.S. would range from a 11% to 15% decline. And the negative economic impact for the U.S. would run from $2.2 billion to $2.9 billion.

The economists ran numbers on two tracts depending on the potential changes in trade elasticities. According to the economists, more normal trade elasticities imply less reaction among trading partners to tariffs or other restrictions. Larger, more elevated elasticities translate into larger reactions by trading partners, both good and bad.

The 25% tariff could lower U.S. soybean exports by a net decline of 14 million metric tons globally (514.4 million bushels) "given standard trade elasticities." Under this scenario, soybean exports to China would fall 47.7% and overall globally would fall 24.1% because the U.S. would see a 13.2% boost in soybean exports to the European Union and a 15.3% increase in sales elsewhere.

A second scenario, unfortunately, is worse. Under a situation of "elevated trade elasticities," exports to the EU would go up 38.6% and soybean exports to the rest of the world would go up 64.1%. Still, overall U.S. exports would be lower because exports to China would fall 90.6%. In such a case, soybean exports would fall by 20 million metric tons (nearly 735 million bushels).

Another impact would be on production. With a 25% tariff, soybean production in the U.S. would fall 10.6%to 14.7%, assuming this would carry forward into the 2019 planting season. In return, soybean production in Brazil would go up 9.3% to 15.4%

Looking at prices, the economists estimate an average of a 4% reduction in price. But looking at "economic welfare" of a region based on these tariffs, the U.S. loses an average of $2.55 billion in economic impact while Brazil gains $2.14 billion in economic value. Interestingly, China also sees its economic well-being decline $2.55 billion as well.

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