Smoothing the Sugar Shock: Import Competition and Household Adaptation in Rural China

ABSTRACT Trade liberalization generates efficiency gains but can expose rural households in specialized cash‐crop regions to import competition and income volatility. This paper examines how Brazilian sugar import shock affects production, income, and consumption among rural households in China's major sugarcane‐producing regions. Using a panel of rural households from these regions over 2007–2015 and a shift–share research design based on baseline sugarcane production shares, the analysis documents that greater exposure to Brazilian sugar imports leads to sizable reductions in sugarcane participation, output, and farm earnings at the regional household level. By contrast, estimated effects on total household income and consumption for all rural households in sugarcane‐producing regions are small and statistically imprecise, suggesting that trade‐induced losses in sugarcane activities do not translate one‐for‐one into declines in overall living standards. Mechanism results indicate that households respond through a combination of crop diversification into alternative cash crops, reallocation of labor from agriculture to local and off‐farm non‐agricultural work, and balance‐sheet adjustments that draw down cash, bank deposits, and productive fixed assets, with some evidence of increased borrowing. These findings imply that rural households in exposed regions smooth income and consumption in the short run by actively adjusting production, labor, and financial portfolios, but at the cost of depleting buffers that may heighten vulnerability to future shocks.