The hidden costs of the trade war: evidence from export margins adjustments in Chinese agricultural exports

Purpose This article examines the impact of the U.S.–China trade war on the quality and quantity of China's agricultural exports. While most current studies have focused on the effects of China's retaliatory tariffs on U.S. agriculture, this study investigates the reverse channel, focusing on how escalating U.S. tariffs affected Chinese agricultural exports to the U.S. We highlight a previously overlooked dimension by examining not only changes in export value and volume but also product quality in response to the trade war, offering new insights into the broader implications of trade policy uncertainty. Design/methodology/approach We employ a difference-in-differences approach using bilateral monthly HS 8-digit-level export data from 2017 to 2021, combined with U.S. tariff schedules. Export quality is measured using a structural demand estimation following Khandelwal (2010) and Fan et al. (2015). We assess treatment effects on export quantity, f.o.b. price and product quality by comparing treated exports (to the U.S.) with control exports (to other countries). Extensive robustness checks and heterogeneity analyses are conducted to validate the results across products and provinces. Mechanism analysis explores whether quality downgrading occurred through product exit at the extensive margin. Findings We reveal a hidden export margin that is rarely discussed in the literature: the trade war not only reduced export value but also lowered the export quality of Chinese agricultural products, with no significant impact on export prices. Exporters responded by shifting to lower-quality varieties rather than reducing prices, indicating quality downgrading as a hidden margin of adjustment to trade war. The negative effects were more prominent in animal products, while provinces with higher export sophistication, agricultural orientation, or policy support experienced smaller negative impacts on exports in response to the trade war. Originality/value This study contributes to the literature by uncovering a quality dimension of adjustment in response to trade war tariffs, which has been largely overlooked in previous research. While prior studies emphasize price and volume effects, our findings highlight quality downgrading as a strategic and non-price response to rising trade costs. By focusing on the agricultural sector, which is often vulnerable yet underexplored in trade war analyses, the article provides important insights for policymakers and exporters navigating future trade uncertainties, emphasizing the importance of maintaining product quality as part of export resilience strategies.