Essays in trade policy analysis: Chinese tariffs on US agricultural markets

In the enduring trade war between China and the United States, China targeted US soybeans, among other commodities, for its retaliatory tariff chiefly because of its sheer volume of imports from the United States. Chapter 2 develops a theoretical and empirical spatial equilibrium trade model to analyze the effects of the Chinese 25% soybean tariff on the United States, China, and nine other major soybean trading regions. The results show that both the United States and China incur welfare losses as a result of the tariff, but that Brazil amasses a large net gain. The United States mitigates some of its losses by reallocating trade to other importers; however, this comes at a cost to smaller exporters, such as Canada.
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\nChapter 3 analyzes the Chinese tariff on imports of US cotton and Yuan devaluation on the United States, China, and other major cotton trading regions. This chapter aims to find the separate impacts of the tariff and Yuan devaluation, as well as their cumulative impacts, to determine the symbiotic relationship between a tariff and currency devaluation. Though currencies fluctuate regularly, the Chinese Yuan is unique in that the government can artificially change the value of the Yuan relative to particular currencies of other countries (for example, the United States) due to the Chinese government's control over its domestic economy and financial markets. The results show that both the tariff and Yuan devaluation each fully expunge US exports to China when analyzed individually. This is because the highly competitive nature of the world cotton market provides the United States and China ample opportunities to reallocate trade. Because the tariff and Yuan devaluation each individually reach the maximum prohibitive trade effect that either can have in terms of lowering US cotton exports to China, the combined effects of both policies have no additional impacts on the world cotton market.
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\nThe United States and China play major roles in the world sorghum market. The United States is the world's largest exporter of sorghum with a large majority of the export market share and, conversely, China is the world's largest importer of sorghum. Therefore, the world sorghum market resembles a bilateral monopoly with the United States and China potentially exerting market power over few fringe exporting and importing countries. Chapter 4 formulates a theoretical and empirical spatial equilibrium model that allows for any level of market power including a bilateral monopoly with fringe countries. The empirical analysis examines the effect of the Chinese 25% tariff on the world sorghum market under various market structures, ranging from bilateral monopoly with fringe countries to perfect competition. Under bilateral monopoly, the effects of the tariff are less pronounced than under perfect competition. Specifically, the reallocations of trade caused by the tariff are lessened as the United States uses its market power to mitigate the adverse effects of the tariff. This reduces the tariff's impacts on prices, production, consumption, and welfare for most countries included in the model.
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\nThe final chapter compares the results of Chapters 2-4 and determines the impacts of the Chinese tariffs under the different market structures of each commodity. Because the United States is the world's largest exporter of soybeans with only Brazil as a real competitor, Chinese soybean consumers have only one viable option in reallocating their imports of soybeans. This results in a prohibitive tariff rate of 22% where soybean trade between the United States and China is completely expunged. In comparison, in the cotton market the prohibitive tariff rate is only 2% (above the existing 40%), which is a result of China's ability to easily reallocate its imports from the United States to other countries. Additionally, the prohibitive sorghum tariff rate is above 25% because the United States and China are the only major sorghum trading regions in the world. Therefore, China is nearly incapable of reallocating its imports of US sorghum to other exporters. Additionally, the final chapter finds that the effects of the tariffs on prices and quantities are also lessened as the level of competition rises.

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