Synthetic Trade Costs: Measuring the Economic Impact of the Chinese Import Stop on US Soybeans

Abstract

The aim of this paper is to assess the economic impact the temporary Chinese import stop on US soybeans in 2018 has had on the US-China soybean trade flow – a major bilateral trade flow. The trade shock’s effect on the US-China soybean trade flow is analysed by comparing the actual US-CHN soybean trade flow with a counterfactual ‘no shock’ situation. This work applies a combination of the Gravity Model of Trade and the Synthetic Control Method in a general equilibrium framework. Referring to an increase of estimated bilateral trade costs in 2018, the results show that the bilateral US-China soybean trade would have been 33% higher than the actual trade flow in 2018 was. Moreover, the results show significant trade diversion effects in 2018 – including increased purchases of US soybeans by EU member states – which decreased in 2019 just as the estimated bilateral trade costs. The robustness checks prove the validity of the results and the applicability of the methodological approach. Therefore, the approach represents a suitable tool to econometrically estimate the general equilibrium effect of economic or policy interventions, whereas the evaluation tool can be applied to a broad range of topics.