China's agricultural trade: An optimal tariff framework perspective

Renan Zhuang, Purdue University


Future trends of China's agricultural trade have been a subject of considerable debate among agricultural economists. One particular problem is that China may be a large country relative to some world agricultural markets, yet virtually all previous studies assumed a perfectly competitive world market and simply treated China as a small country. The objective of this study is to revisit this important subject from an optimal tariff framework, assuming China is a large trading country. Our approach also allows us to study the political economy of China's agricultural trade policies quantitatively. The major agricultural products under study include wheat, corn, rice, pork, and poultry meat. A trade model is developed based on supply-utilization tables for China. An LA/AIDS model is used to estimate consumption, so that constraints from demand theory may be imposed in estimation. Household income, per capita consumption, and prices are all at China national levels, and are estimated using time series data. A CES nest of demands for differentiated imported goods (for poultry) is used to help explain the substantial two-way trade observed in China. China's domestic supply, stocks demand, feed demand, and foreign export supply or import demand faced in China are estimated in single commodity simultaneous equations frameworks. Chinese behavior in the world markets is derived from its domestic market behavior. Our estimation results suggest that China is a “large country” and has market power in its trade of all the commodities under study. We have rejected the hypothesis that China's national welfare function is specified with equal weight for each interest group for the cases of wheat, rice, corn, and poultry meat. Hypothesis test results for political bias indicate that China gave relatively higher political weights to consumers in the past, but it has changed this political objective and started to increase its supports for its grain producers in recent years (since 1996). For pork and poultry, China's trade policies tend to favor consumers. This research is the first of its kind to take into consideration the relative political weights and market power in trade in predicting China's future agricultural trade. Such parameters as technology, income, and population growth rates remain important in projections for future trade. Relative political weights and market power in trade play an important role in future trade simulations.




Abbott, Purdue University.

Subject Area

Agricultural economics

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