Has the Trade War impacted the deforestation in the Brazilian Legal Amazon? The impact of the Trade War on Brazilian Amazon deforestation: a soybean perspective

Abstract

The Trade War was a tariff battle following a "tit-for-tat" strategy between the United States and China. In 2018, after the escalation of threats, both countries applied tariffs on several products. When China applied tariffs on American soybeans, it shifted its demand to the largest soybean producer in the world- Brazil. In Brazil, soybean production is associated with deforestation, especially in the Legal Amazon due to the fronteira agrícola expansion. The literature on the Trade War highlights the adverse environmental impacts of the trade dispute. However, no work uses a causal inference method to assess whether the Trade War caused more deforestation in Brazil. This thesis aims to cover a gap in the literature by using a Fixed-Effects Instrumental Variable to estimate the impact of the Trade War on deforestation in the Legal Amazon. I found that higher levels of Chinese soy demand during the Trade War years did not cause more deforestation in the Legal Amazon. This work can also inform policymakers. Under the threat of a Trade War 2.0 and disruptions on a larger scale, Brazilian policymakers need concrete evidence of the effects of the Trade War to develop even more effective policies to curb deforestation in the Legal Amazon.