Cascading Impacts of the USA--China Trade War on Global Oilseed Supply Chain

2026-06-28

AI Summary

This study investigates how tariff shocks from the U.S.–China trade war propagate cascading disruptions through the global oilseed supply chain and evaluates the effectiveness of mitigation mechanisms such as trade reallocation and production capacity expansion. The authors innovatively integrate an input–output model with linear programming to construct a unified system-equilibrium framework that endogenously incorporates trade reallocation and production expansion strategies, and they develop an efficient algorithm to compute large-scale approximate equilibria that minimize unmet demand. Counterfactual simulations reveal that a 70% disruption in U.S.–China oilseed trade reduces global output by 3.27%, with China bearing a 14.02% loss. Redirecting 20% of Brazil’s exports toward China lowers global losses to 1.36% but intensifies domestic supply–demand imbalances in Brazil, highlighting the asymmetric distribution of economic costs and inherent trade-offs across nations in implementing mitigation strategies.

Abstract

Global supply chains are highly interconnected, making them vulnerable to cascading disruptions induced by trade policy shocks. Understanding how such disruptions propagate through production networks, and how mitigation mechanisms such as trade reallocation and production adjustment can alleviate their impacts, remains a central challenge. In this work, we develop a linear programming formulation of an Input-Output (IO) system that captures cascading supply-chain disruptions together with trade reallocation and production expansion. Our formulation yields a system-level equilibrium characterization that enables the joint analysis of disruption propagation and mitigation within a unified framework. We propose an efficient algorithm for computing approximate equilibrium solutions by minimizing total unmet demand in large IO systems. We apply our approach to tariff-induced disruptions in the global oilseeds supply chain arising from the U.S.-China trade war. Our results show that a localized 70% disruption to flows from the U.S. oilseeds sector to China leads to a 3.27% loss in global output, with China experiencing a disproportionate loss of 14.02%. As a counterfactual mitigation strategy, allowing a 20% reallocation from Brazil's oilseed sector to China significantly reduces global output losses to 1.36%, although pressure remains high on final-demand flows. We further investigate production expansion as an additional mitigation mechanism and show that it introduces tradeoffs between reducing global final-demand losses and protecting Brazil's domestic flows. Domestic reallocation disproportionately shifts losses toward smaller economies, while globally sourced expansion redistributes losses more broadly across the network.

Problem

• cascading disruptions
• trade war
• global supply chain
• oilseeds
• tariff-induced shocks

Innovation

• cascading disruptions
• input-output model
• trade reallocation
• production expansion
• linear programming