When Giants Clash, Smaller Economies Pay: The Global Cost of a US–China Trade Shock

Global supply chains do not adjust without friction. When a major trade route is disrupted, the pressure moves through farms, factories, transport systems and consumer markets far beyond the countries that started the dispute.

A new modelling study of the global oilseed supply chain shows how a sharp reduction in US exports to China could trigger cascading losses across countries and industries. The researchers estimate that a 70% disruption in US oilseed flows to China could reduce global gross output by 3.27%, while China could suffer a substantially larger 14.02% loss. Allowing Brazil to redirect additional oilseeds to China cuts the modelled global loss to 1.36%, but does not remove the damage. It shifts part of the pressure onto other economies and competing users of Brazilian supply.

Resilience cannot be judged only by whether global production recovers. Policymakers must also examine which countries lose access to scarce commodities, which industries surrender inputs and whether trade diversion protects large markets by transferring shortages to smaller ones.

A Bilateral Fight, a Global Shock

China's soybean dependence makes the oilseed trade an especially important test of global supply-chain resilience. The country imported approximately 105 million tonnes of soybeans in 2024, equivalent to about 85% of domestic demand. Brazil, the United States and Argentina supplied most of these imports, leaving China highly dependent on a small group of exporters and exposing the wider market to disruption whenever relations between major trading partners deteriorate.

Recent experience already demonstrates the speed of such adjustments. During the 2018 US–China trade conflict, China shifted sharply away from American soybeans and increased purchases from Brazil. The redirection helped replace part of the disrupted supply, but it also coincided with rising soybean prices within Brazil and wider imbalances in related markets. The study notes that Brazilian soybean oil imports subsequently rose by more than 20% at higher prices, illustrating how an export surge can create domestic shortages or force a country to import processed products after sending more raw commodities abroad.

The researchers move beyond the usual assumption that prices will automatically guide markets toward a new equilibrium. Their model emphasises physical constraints: farms cannot instantly increase output, ports cannot handle unlimited additional cargo and industries cannot always replace one input with another. A disruption in one trade link can therefore reduce production in downstream industries, alter household supply and create bottlenecks in countries that have no direct role in the original dispute.

Small Economies Take the Hidden Hit

The model confirms that China experiences the greatest absolute loss because it is the direct destination of the disrupted US supply. However, the shock also reaches the United States, Japan, Germany, Southeast Asian economies and other countries connected to Chinese production and global oilseed markets. Effects spread beyond agriculture because oilseeds and their derivatives feed into food processing, chemicals, manufacturing, trade and other sectors.

More importantly, several smaller African economies experience disproportionately high percentage losses in final demand, particularly during the earlier stages of disruption. Their losses may be modest in absolute monetary terms, but much larger relative to the size of their economies or household markets. The model suggests that these countries are exposed through their dependence on Chinese industries and other downstream links rather than through direct soybean trade.

This distinction has major development-policy implications. A large economy may be able to absorb a supply shock through fiscal support, inventories, diversified import contracts or social protection. A smaller or lower-income country may face immediate food-price pressure, reduced household consumption and shortages of industrial inputs. The study also finds that final-demand losses emerge before the strongest production cascades, meaning households can experience the disruption before conventional economic indicators reveal the full scale of the problem.

The findings expose a weakness in how global resilience is often measured. Aggregate output can recover while vulnerable populations remain worse off. The model itself treats all units of unmet household demand equally and does not prioritise poorer countries, essential goods or humanitarian needs. The authors therefore caution that its allocations reflect economic efficiency rather than a recommendation for how scarce commodities should be distributed.

Brazil Can Ease the Shock, but It Cannot Erase Scarcity

Brazil is the most obvious alternative supplier in the study's mitigation scenarios. When the model permits a 20% increase in Brazilian oilseed flows to China, losses become smaller and less widespread. China records the largest recovery, while Brazil's own net loss falls from 0.76% to 0.37%. The additional supply also supports recovery in Chinese sectors that depend directly or indirectly on the disrupted oilseed flow.

Yet trade reallocation does not create additional commodities; it changes who receives them. Sending more Brazilian oilseeds to China reduces the amount available to other buyers and domestic users. The study finds that the resulting final-demand losses are redistributed across countries connected to Brazil's trade network, including Thailand and Norway. While the original disruption becomes less severe, its burden is partly transferred to a different group of economies.

The researchers then examine whether a 10% increase in Brazilian oilseed production could provide a more durable solution. Expansion supported through domestic inputs improves oilseed availability and produces a small net output gain for Brazil. However, it also diverts resources from other parts of the Brazilian economy, including chemicals, vegetable oils, trade and textiles. Smaller economies linked to these sectors may experience additional pressure as Brazil reorganises production around the needs of the Chinese market.

Allowing Brazil to obtain the necessary inputs from international partners spreads the adjustment costs across a broader network. Some smaller economies benefit because the pressure is no longer concentrated within Brazil's domestic system, but the improvement in aggregate global output remains limited. The key constraint is unchanged: when productive capacity is finite, every expansion requires labour, capital, land, infrastructure or intermediate goods that might otherwise have served another purpose.

Resilience Is About Who Bears the Cost

The study introduces a linear-programming framework that models trade disruption, reallocation, production expansion and capacity limits together. It uses a 2023 global input-output database covering 163 economic regions, 65 sectors, 10,595 country-sector entities and approximately 6.87 million intermediate production flows.

Its methodological contribution is important because it shows that substitution is conditional. Alternative suppliers must have spare capacity, adequate infrastructure and access to the inputs required for expansion. Existing trade relationships also matter because commodities cannot always be redirected seamlessly toward a new buyer. The study simplifies these constraints by treating products within the oilseed sector as relatively substitutable, even though crops, production systems and logistics differ across countries.

The results should therefore be interpreted as counterfactual model outcomes rather than precise forecasts. The paper was released as an arXiv preprint in June 2026, and the model does not fully incorporate price movements, inventories, shipping delays, environmental consequences or behavioural responses by governments and businesses. It also measures gross output, which includes intermediate production and is not equivalent to GDP.

Governments should diversify suppliers before a crisis, strengthen strategic reserves and invest in storage, transport and alternative trade routes. Multilateral institutions should identify countries exposed through indirect supply-chain links rather than focusing only on major exporters and importers. Businesses need to map second- and third-tier dependencies, while development agencies should treat trade resilience as part of food security, industrial policy and social protection.

The lesson also extends beyond soybeans. Similar cascading effects can emerge in fertilisers, grain, energy, pharmaceuticals, semiconductors and critical minerals, markets where production is concentrated and substitution takes time. Trade diversion and production expansion may reduce aggregate losses, but they can also create localised resource stress and transfer scarcity to countries with less economic and political influence.