UTRECHT, NETHERLANDS — As the United States and China go head-to-head in an ongoing trade war, RaboResearch conducted a thought experiment to see how the countries’ retaliation could affect supply and economies across the world. In the three potential scenarios outlined by RaboResearch, outcomes range from supply surpluses to severe shortages of key agricultural products due to shifting global alliances.

“We wanted to explore the potential extremes of heavy trade restrictions and their implications for the global food and agribusiness industry across various scenarios,” said Stefan Vogel, general manager of RaboResearch Australia & New Zealand. “The considerable global uncertainty caused by the US-China tariff war could pressure other countries to strategically (re)align in an attempt to create some stability and mitigate the impact on global supply chains. These shifting alliances between major global powers could pose significant threats to global food and agribusiness supply chains.

“What if trade tensions escalate to the point where Europe would be required to join the US alliance for military protection, even if it limits their possibility to trade freely with China? With whom might South America join forces?”

Scenario 1: Major rerouting costs for US and Oceania dairy, meat exports

The first scenario that RaboResearch posits is a fairly neutral landscape where South America and Europe continue trading with all nations. The United States aligns with major exporters such as Canada, Australia, Ukraine and New Zealand, along with key importers like Japan, Egypt, Mexico and India. Meanwhile, China is supported by exporters from the former Soviet Union (excluding Ukraine).

In this hypothetical, most food staples remain manageable yet would require costly rerouting, Vogel explained.

“The US alliance could face minor oversupplies of oilseeds and animal protein,” he said. “A more significant challenge would be redirecting Oceania milk solids and US lactose and whey exports to other products and markets, adding costs. Additionally, sheepmeat and wool exports from Australia and New Zealand — the world’s largest exporters of these commodities — would be severely impacted. The China alliance, on the other hand, would experience tight oilseed supplies, leading to increased costs for vegetable oil and protein feed for the livestock sector.”

Scenario 2: Oversupplies in the US alliance, food shortages for China

In the second scenario, the remaining neutral countries in South America and Europe bend to the pressure to choose a side, ultimately aligning with the United States. Thus, these regions restrict their potential trade with China and its allies.

“The scenario predicts a massive 120 million metric ton oilseed and 40 million metric ton grain trade surplus in the US alliance, hurting cropping margins,” said Mary Ledman, global dairy strategist at RaboResearch. “Meanwhile, the China alliance would struggle with severe feed supply shortages, posing substantial threats to food security. Significant disruptions in the dairy market would also be likely, with over 80% of global dairy trade affected.”

Beef and sheepmeat would be hit the hardest with significant margin pressure, according to the report. Additionally, the US alliance would struggle to find outlets for 12% of their pork exports. China would face an animal protein supply deficit of 6 million tonnes due to fewer import opportunities. The country would lose more than 90% of its beef imports, accounting for 32% of its consumption.

Scenario 3: Manageable agri commodities, but struggling farm inputs

The final outcome posed by RaboResearch involves ultimatums from the United States and China, dividing the neutral countries, with South America aligning with China, and Europe supporting the United States.

“In this scenario, agri commodities would be manageable, but significant reshuffling would be required,” Ledman said. “Farm inputs would struggle. Also, the US alliance would face some smaller oversupplies of oilseeds, while the China alliance would experience a large lactose, whey, and whey protein shortage.”

With this hypothetical, China’s domestic animal protein production would be able to find enough feed through the large oilseed and corn production in South America. Animal protein trade would be balanced. While the US alliance would be able to find enough buyers for animal protein, rerouting and poor demand for certain cuts would weigh on producer margins.

Further trade disruptions

While RaboResearch mainly focused on disruptions in major agri commodities and farm inputs in its thought experiment, the firm noted effects are much more wide reaching. Other areas impacted include production, processing, packaging and distribution of agri commodities, such as the following:

• Foreign exchange rate movements: Trade disruptions could impact trade competitiveness and affordability of imported goods.
• Energy: There may be a need for massive rerouting of coal exports, especially from Australia, Indonesia and Russia to key demand regions in Asia, as well as imports of gas and oil into the United States and European Union.
• Machinery and packaging materials: Shortages could negatively impact the F&A sector.
• Labor: Immigration restrictions could affect labor availability on farms and in the processing industry.
• Raw materials and feedstocks: Restrictions on the availability of feedstocks and raw materials required to produce farm inputs (e.g., certain chemicals for the production of plant protection products) could limit supply of certain farm inputs.

US policies extend beyond addressing trade deficits and have major implications for global security. US tariffs serve not only to achieve economic goals but to strengthen its position as a global leader, increase revenue, and to reward and punish allies and enemies, Vogel explained.

“The US not only wants to gain economic benefits by reshaping its trade relationships, but also to strengthen its global hegemony at a time when China strives to increase its importance and power in Asia and globally,” he said.