ASSESSMENT OF THE IMPACT OF RECENT TRADE POLICY SHIFTS ON WORLD AGRICULTURAL AND AGRI-FOOD TRADE PATTERNS

The main goal of the proposal is to assess the extent to which the trade policy changes between 1/1/201721 impacted the values and prices of international trade and U.S. exports. The considered trade policies are the following:The U.S.-Japan Trade Agreement October 2019The U.S.-China Phase One economic and trade agreement February 2020The new Agreement between the U.S., Mexico, and Canada (USMCA) December 2019The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) December 2018The U.S. trade dispute with China, the EU, Mexico, Canada and Turkey that began in 2018-2019The potential unilateral trade restrictions (both at the export and import level) the countries may apply during various periods following the Covid-19 crisisThese various events are expected to have diverse effects on world trade and U.S. exports. While the trade agreements signed by the U.S. should increase U.S. export by reducing the tariffs faced by U.S. agricultural exports on the Japanese, Canadian, Mexican and Chinese markets, the trade disputes occurring from 2018 to 2020 have decreased U.S. exports to China, Canada, Mexico, Turkey and the EU for products targeted by retaliatory measures. In addition to these trade policies directly involving the U.S., the CPTPP agreement between the countries of the Pacific area may lead to a diversion of trade, as some agricultural exporters such as Australia and New Zealand may replace the United States in its traditional destination markets. The different kind of trade restrictions some countries may apply following the Covid-19 crisis, both at the export and at the import level, may also have a significant impact on world trade values and prices, even if it is now difficult to predict their extent.The proposal has four objectives:1. To monitor agricultural trade policies implemented after the Covid-19 crisisThe Covid-19 pandemic caused a major economic crisis and disruption in world trade, mainly due to the containment policies put in place by countries around the globe. It has also led some countries to apply restrictive trade policies for medical products and for certain agricultural products such as wheat (Russia, Tajikistan) or rice (Vietnam). It is possible that this crisis will lead countries to reassess the risks of being too dependent on the international market to feed their population and generate new restrictions on agricultural trade, both in imports and exports. The first objective of this project is to monitor the different trade policies implemented in 1/1/202021 in agriculture following the Covid-19 crisis, including implementation of the U.S.-China Phase One agreement. This data will then be added to the information we already have on trade agreements or trade disputes.2. To assess the overall effect of trade policy shifts between 1/1/201721 on aggregate trade values The second objective of the project is to assess the overall effect of concomitant tariff reductions or increases on world trade values, with a specific focus on U.S. exports. The estimation of a gravity model at the aggregated level will allow us to see in particular whether the effect of U.S. trade disputes on total American agricultural exports is offset by the signature of trade agreements by the U.S. It will also provide an evaluation of the trade diversion occurring in the Pacific Area due to the CPTPP and to trade restrictions implemented following the Covid-19 crisis.This step will allow us to discuss the effects of the policies not only on the total amounts of U.S. exports but also on those of its main competitors on the world agricultural market, depending on the destination markets. We will also be able to see in which destination markets the effect of trade policies is most pronounced and where the United States has gained or lost the most market share and against which competitors. We will distinguish the pre-Covid-19 crisis from the post-crisis period to investigate whether the effect of trade policy changes after the Covid-19.3. To determine which products have been most impacted by these variations in market accessThe third objective of the project is to determine which products are the most impacted by the recent changes in trade policies. The effect of trade policies is expected to be heterogeneous across products. First, tariff reductions defined in trade agreements or the retaliations are different from one product to another. Second, the products are not sensitive to customs duties and trade costs in the same way. The existence of non-tariff measures, perishability of products, and different demand or supply elasticities, make markets for products react differently to a reduction or increase in tariffs. The aim will be to establish a ranking of the most impacted sectors or products. For which products was the trade agreements the most beneficial? Which products/sectors are the most impacted by diversion? In which sectors the trade dispute with China or the EU had the higher effects?To achieve this third objective, we will estimate structural gravity equations at the sectoral level, which allow us to have estimates of the effect of trade agreements or trade disputes for each sector (for example, corn, soybean, tobacco, beef...). Using the state's share in U.S. production, we will then be able to estimate the impact of trade policy shifts on Virginia's agricultural and food production and to discuss the effect of the world trade situation on Virginian farmers.4. To evaluate the effect of trade policies on trade pricesTrade policies not only affect the traded values, but can also impact prices. Depending on the structure of markets, the pass-through of customs duties may be complete (the variation in tariffs is directly reflected in the price of products) or incomplete (part of the tariff is absorbed by exporting firms). Moreover, trade policies, by changing trade quantities on the markets, also impact the level of competition on the destination markets, and thus affect prices.The last part of the project will investigate the impact of trade policies on trade prices. To be relevant, this analysis should rely on data at a very disaggregated level of the product nomenclature to avoid aggregation bias. As for the objective iii, we will proceed to an econometric estimation at the sector or product level to estimate the impact of tariff variations on prices level. We will be able to estimate these effects by exporter or by importer.