The US-China tension, global supply disruptions and the agricultural commodity markets : a dynamic multivariate panel data analysis

Abstract

PURPOSE : The US–China trade friction represents a major geopolitical shock that disrupts global trade flows, supply chains, and commodity markets. This study aims to provide new evidence on how US–China trade tensions (UCT) influence the realized volatility of agricultural commodity prices, with a focus on both futures and spot markets, and to examine the differential responses of these markets to geopolitical and supply chain shocks. DESIGN/METHODOLOGY/APPROACH : Using a dynamic multivariate analysis with data spanning from April 1998 to February 2024, which encompasses multiple trade cycles, including the 2018–2019 US–China trade war and the post-pandemic recovery, we uncover how geopolitical tensions transmit to commodity markets via the global disruption channel. FINDINGS : Our findings show that the futures market tends to exhibit stronger and more persistent volatility in response to trade tensions than spot markets, reflecting the forward-looking nature of futures trading and the role of speculation in amplifying uncertainty. Moreover, our robustness analysis confirms that the volatility response is more pronounced for certain commodities directly exposed to the US-China trade nexus. In contrast, globally traded soft commodities exhibit more muted reactions. ORIGINALITY/VALUE : This study makes three key contributions. We (1) introduced the US-China trade tensions (UCT) as a novel source of geopolitical uncertainty in global agricultural commodity markets (2) employed the new indices of the US-China Tension Index and the Global Supply Chain Pressure Index (GSCPI) to capture multidimensional global risks (3) applied the dynamic multivariate panel framework to assess how UCT shocks propagate through commodity spot and futures markets, influencing volatility and price dynamics.