In 2018 and 2019, following a decades-long trend in reducing barriers to global trade, the U.S. and China engaged in a highly contentious trade war. In addition to new import tariffs on both Chinese and U.S. products that covered about $450 billion in trade flows, the U.S. imposed tariff increases on steel and aluminum imports from nearly all countries and China cut its tariffs across sectors for all countries except the U.S.
In an analysis of how the U.S.-China trade war affected “bystander” countries (the world’s 50 largest exporters, other than U.S. and China), Princeton’s Pablo Fajgelbaum, Pinelopi Goldberg (Yale), Patrick Kennedy (Berkeley), Amit Khandelwal (Columbia Graduate School of Business), and Daria Taglioni (World Bank) show that as trade slowed between the U.S. and China, bystander countries found new trade opportunities that resulted in a global export growth of 3 percent.
Previous work has studied how U.S. import tariffs affected imports from China relative to imports from other countries with the same products. By studying how tariffs affected exports from 50 countries around the world, this paper is the first to illustrate how the trade war affected exports on a global scale.
On products targeted by tariffs, countries outside the U.S. and China found new opportunities
Though export growth varied across countries, bystander countries on average decreased exports to China and increased exports to the U.S. and the rest of world. This suggests the typical country was able to take advantage of U.S. tariffs on Chinese products by increasing exports to the U.S. Further, as China’s exports to the U.S. shrank, so did its demand for the goods it uses to create those exports. As a result, bystander countries turned away from China and increased their exports to the rest of the world.
Importantly, not all countries saw export growth, and the variation in growth was not entirely driven by whether or not a country specializes in a given product. Rather, other factors that influence a country’s ability to respond played a large role in explaining the winners and losers from the trade war.
The authors’ analysis uncovered several countries that managed to be strong substitutes for China’s exports. This includes Mexico, Malaysia, and Thailand, each of which increased exports to both the U.S. and the rest of the world as a result of the trade war. South Africa and the Philippines proved to be poor substitutes, as their exports to both the U.S. and the rest of the world fell.
All together, the authors argue that trade reallocations that happened as a result of the U.S.-China trade war did not occur at the expense of exports to other countries. Instead, the U.S.-China trade war created trade opportunities.
To conduct their analysis, the authors implemented a model that uses International Trade Centre (ITC) global bilateral trade data that tracks trade flows from January 2014 to December 2019 at the product level. They considered four sets of tariff changes using a sample of 50 countries, including the U.S. and China, that together account for 95.9% of global trade.