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.