The U.S. China Trade War
Paper Session
Friday, Jan. 3, 2025 2:30 PM - 4:30 PM (PST)
- Chair: Trang Hoang, Federal Reserve Board
Trade Wars and Rumors of Trade Wars: The Dynamic Effects of the U.S.-China Tariff Hikes
Abstract
We develop a multi-region general equilibrium model with heterogeneous tariffs across good types to study the effects of the U.S. tariff hikes in 2018 and 2019 and expectations on the global economy. Our model is consistent with trade patterns since the tariff hikes, such as the gradual decline in U.S.-China bilateral trade and the diversion of Chinese exports to third-party regions. We find that the trade war induced sizeable welfare losses for both the U.S. and China, but size asymmetries and terms of trade movements exacerbate China's losses and alleviate U.S. losses, so that China's losses are larger. Expectations about the persistence of tariffs play a key role in determining macroeconomic dynamics.Exports in Disguise? Trade Re-Routing During the U.S.-China Trade War
Abstract
Origin-specific tariffs are a common policy tool; however, critics claim that such tariffs are often circumvented by rerouting goods through intermediary countries. This study examines whether rerouting increased due to the 2018-2019 U.S.–China trade war via Vietnam. We define rerouting at the product level as the maximum value of trade flows from China to the U.S., passing through Vietnam, for identical HS 8-digit products within the same quarter. Additionally, we employ a firm-level definition, which only considers such flows within the same firm.Our findings indicate that the level of aggregation significantly impacts rerouting estimates. In 2021, 16.1% of Vietnamese exports to the U.S. were identified as product-level rerouting, while only 1.8% were flagged as firm-level rerouting, equivalent to 15.5 billion and 1.7 billion current USD annually. Moreover, the average tariff increase on Chinese exports led to a 5.9 percentage point rise in product-level rerouting, compared to a 0.22 percentage point increase in firm-level rerouting. These increases represented 47.2% and 15.7% of their 2018 levels. These differences underscore the importance of microdata for designing trade policy and assessing compliance.
What Firm-Level Responses to Tariffs Reveal About Trade Fragmentation
Abstract
In recent years, global supply chains have been buffeted both by a series of shocks and by rising geopolitical tensions. And yet, there is little evidence of how firms might be adjusting their supply chains in response to these pressures. This paper uses detailed micro-level data on the imports of all US firms to examine changes in their sourcing behaviour in response to the US-China trade war. Intuitively, US importers have lowered the share of imports sourced from China in response to the tariffs and increased imports from other countries, especially other Asian countries. In addition, we find that U.S. firms have taken steps that might increase the resilience of their supply chains, such as diversifying their set of source countries and increasing the share of imports coming from related parties. However, we also document important costs of this focus on resilience, as higher tariffs are associated with reduced overall trade flows and higher average unit values (prices) for firms' imports. Importantly, we find that tariff-affected firms have adjusted their sourcing patterns not only for products subject to tariffs, but also for other, “unaffected,” products.Discussant(s)
Matilde Bombardini
,
University of California-Berkeley
Shafaat Yar Khan
,
Syracuse University
Kei-Mu Yi
,
University of Houston
Anais Galdin
,
Princeton University
JEL Classifications
- F1 - Trade