The US-China Trade War and Global Reallocations
How did the US-China trade war affect global trade? Surprisingly, exports of products taxed by US or China increased from “bystander” countries to the rest of world (excluding US and China). Hence, the trade war created trade opportunities rather than simply shifting trade across destinations. There was large cross-country variation in export growth of tariff-exposed products, explained mostly by country-specific components of tariff elasticities rather than by specialization patterns. Through a standard trade model, the signs of the tariff elasticities identify if a country complements or substitutes the US or China, and the slope of its supply curve. Countries that operate along downward-sloping supplies whose exports substitute (complement) US and China are among the larger (smaller) beneficiaries of the trade war.
We thank Veronica Rappaport and Irene Brambilla for their conference discussions of the paper; Juan Carlos Hallak and Ahmad Lashkaripour for helpful comments; and seminar participants at Australasian Meeting of the Econometric Society, ERWIT, Bank of Portugal, Barcelona Summer Workshop, CEU Vienna, China Meeting of Econometric Society, Federal Reserve Board, HKU, Harvard/MIT, Indiana, LACEA/LAMES, LACEA TIGN, NBER ITI, Penn State, Princeton, Purdue, SMU, Tsinghua, World Bank, and UCSD for comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Upending a decades-long effort to reduce global trade barriers, China and the United States began mutually escalating tariffs on $450...