An analysis of the 1980 US trade embargo on exports of soybeans and soybean products to the Soviet Union: a spatial price equilibrium approach

Bashir Aslam Qasmi

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: After the Soviets moved into Afghanistan on January 1, 1980, the US imposed an embargo on exports of a number of agricultural commodities including soybeans and soybean products. This study attempted a comprehensive analysis of the impacts of the 1980 US trade embargo using a twelve region spatial price equilibrium model for world trade in soybeans, soymeal, and soyoil;Soymeal and soyoil were treated as final commodities, and the linear demand equations were estimated for different regions by ordinary least squares using annual data for the years 1965 through 1980. Soybeans were treated as an intermediate commodity, and its demand was derived from the demands for soymeal and soyoil. The production of soybeans and inventories of soybeans and soybean products in different regions were predetermined. Similarly, the soymeal and soyoil per unit of soybeans processed, the per unit transfer costs for different commodities, and the per unit soybean crushing costs were also predetermined;The model was solved with estimated imputs levels for 1979 and 1980. The model predicted regional prices, demands, and crushing levels exceptionally well. The trade flows predictions of the model were reasonable. The model was also validated by evaluating changes in the base solution in response to different shocks in the input levels;The impacts of the US trade embargo were simulated by constraining the trade flows from the US to the Soviet Union at zero and obtaining the deviations from the base solutions. It was found that the introduction of the US embargo did not cause any change in the price levels or in the total quantities of different products available in different regions for either 1979 or 1980. The Soviet Union, in both cases, was able to meet all its import demand. However, the trade patterns changed. With the US embargo, all Soviet imports originated from Brazil and Argentina. With the increased exports to the Soviet Union, Brazil and Argentina were unable to export to their traditional trading partners, and this trade was switched to the US. Losses of US sales to the Soviet Union were fully offset by additional US sales to other importing countries. (Abstract shortened with permission of author.)

Date: 1986-01-01
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