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

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.