Robert C. Feenstra

Chang Hong

In December 2019, the United States and China reached a Phase One trade agreement, under which China committed to purchase more imports from the United States: $12.5 billion more agricultural imports in 2020 and $19.5 billion more in 2021, as compared to 2017. We show that the most efficient way for China to increase its imports from the United States is to mimic the effect of an import subsidy. If China's agricultural imports did not otherwise grow from their 2017 values, then the subsidies would need to be 42% and 59% to meet the 2020 and 2021 targets, respectively. These effective subsidies mean that China would divert agricultural imports away from other countries. We find that this trade diversion is especially strong for Australia and Canada, followed by Brazil, Indonesia, Malaysia, Thailand, and Vietnam.

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