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.