Trade destruction and deflection effects of US‐China trade frictions on China’s tariff‐targeted products

Abstract

This paper probes into the impacts of US‐China trade rows on China's exports of products covered under the applicable tariff lines. We scrutinise the monthly trade data of China with the US and third‐party markets from January 2017 to June 2019, employing the DID model. It is found firstly that the US levy of tariffs on $50 billion and $200 billion worth of Chinese products have produced a significant and adverse trade destruction effect on China's exports to the US. Meanwhile, the tariffs levied on these products have played a significant and positive role in deflecting China's export to third‐party markets. Second the US additional tariffs on $50 billion of China's products have produced greater trade destruction and deflection effects on China's export of tariff‐targeted products to the US, whereas only the US additional tariffs on $200 billion of China's products have caused a net trade destruction effect. Third, it is confirmed that the trade destruction effects of US additional tariffs on Chinese products exported to the US are mainly concentrated on high tech‐intensive manufactures and primary goods, while the trade deflection effect of China's export to third‐party markets is concentrated on differentiated products. The findings render crucial policy implications.