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ABSTRACT In the context of the 2018/2019 US–China trade war, the Chinese government responded to President Trump's tariffs by imposing retaliatory tariffs, particularly targeting US agricultural products such as soybeans. This paper employs a novel instrumental variable approach to assess the causal effect of China's retaliatory tariffs on US agricultural exports, both to China and its primary third‐party importers. The analysis reveals that a 10% increase in retaliatory tariffs on a US agricultural export results in approximately a 1.45%–2.14% reduction in exports to China, alongside a 0.36%–0.58% increase in exports to 38 other major importing nations. In monetary terms, these elasticities translate to estimated annual export losses ranging from 6.91 billion USD to 10.19 billion USD in the Chinese market, contrasted with export gains of 5.30 billion USD to 8.54 billion USD in alternative markets. The findings demonstrate a substantial trade deflection effect, wherein the expansion of exports to third‐party markets counterbalances approximately 76.7%–83.8% of the export contraction in the Chinese market.
Xing Xu (Mon,) studied this question.