The Cost of Uncertainty: US–China Tariff Effects on Agricultural Commodity Markets

ABSTRACT

We examine the impact of US–China trade policy announcements on corn and soybean markets. Using time‐series models, our results show that prospective tariff announcements significantly increased implied volatility (IV), especially during the 2018–2019 trade war. Our results show that corn and soybean markets responded to both countries' announcements. We observe the strongest volatility impacts at the 90% and 95% strikes. Our results indicate that higher IV raised hedging costs for producers, further constricting farm margins– a 7.5% rise in IV increased soybean option premiums by approximately 3.75%. These findings highlight the financial burden imposed by trade policy uncertainty beyond its impact on commodity prices.