China agrees to buy more American beef

China just agreed that the U.S. will be allowed to sell beef, and other major products, into China once again. This is REAL news!

— Donald J. Trump (@realDonaldTrump) May 12, 2017

That’s great news if you are a cattle rancher. Is it great news if you are a consumer? Let’s have a look.

In the top diagram you see the supply and demand of beef in the current situation. In the bottom diagram you see the result of increased Chinese demand for US beef.

THe increase in demand is shown by the shifting up and to the right of the demand line. That shift results in an increase in quantity demanded from Q1 to Q2 on the X axis and increase in price from P1 to P2 on the Y axis. In other words, the increase in demand for US beef will cause an increase in the price of beef for US consumers.

In the long run, there is a high probability that supply of beef will also increase in response to the demand. This will move the supply line to the right bringing prices back to P1. Increasing supply, however, takes much longer than increasing demand. Consumers, therefore, should expect to pay more for beef – least in the near term – due to the increase in demand associated with opening the market in China.