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Pablo Fajgelbaum | The US-China Trade War and Global Redistribution

December 2-3, 2022, hosted by the Center for International Finance and Economics Research (CIFER) of the National Institute of Financial Research, Tsinghua University.Academic Symposium on "2022 International Trade Disputes and the Restructuring of Globalization"The event was successfully held.UCLA professorPablo FajgelbaumAttendees wereCIFER Researcher, School of Statistics, Beijing Normal UniversityProfessor and Vice DeanLi XinHostTechnological Competition and Industrial Policy Sub-Forum 4Sharing with collaborators (as shown below) on the topic of"The US-China Trade War and Global Reallocation"The article.

Pablo Fajgelbaum, Professor of Economics at UCLA He is a renowned economist in the field of international trade. His recent research focuses on the impact of the US-China tariff war on trade distribution and the impact of regional policies on the spatial distribution of economic activity. His research was published in [Journal Name].Quarterly Journal of Economics, Review of Economic Studies, Journal of Political Economy, and Econometrica。

Pablo Fajgelbaum

This article This study primarily examines how the US-China trade war impacts global trade. The authors estimate the impact of US-China tariffs on exports to other countries at the product level. Since most countries' exports to the US are complementary, while their exports to China are substitutable, and the supply curves for some products exported to China have negative slopes, the tariff war led to a reduction in exports to China and an increase in exports to the US and other countries. Meanwhile, Professor Fajgelbaum's research found that the tariff war did not significantly reduce international trade in the products subject to tariffs; in fact, global trade in these tariffed products actually increased. Therefore, while the trade war hindered further tariff reductions—the trend towards free trade—it did not have a significant negative impact on global trade growth.

During the 2018-2019 trade war, the United States and China raised tariffs on each other, affecting more than $450 billion in trade. This study focuses on the impact of the US-China trade war on trade with other countries outside of China and the US, providing a natural experiment for understanding the core drivers of world trade.

Based on global bilateral trade data using HS6-bit codes, the author confirms that the impact of the US-China trade war on other countries in the world depends primarily on two factors: whether the country's exports are complementary or substitutive to both the US and China; and whether the supply curve is rising or falling.

The authors used monthly global bilateral trade data from the Comtrade database from January 2014 to December 2019, covering 50 major countries and accounting for 95.9% of world trade, and divided it into 9 industries using HS6-digit codes. The tariff data covers January 2018 to December 2019. The data on U.S. tariff changes on China comes from the U.S. International Trade Commission (USITC), the data on China tariff changes on the U.S. comes from the Ministry of Finance of China (China MoF), and the data on U.S. tariff changes on other countries comes from Fajgelbaum, Goldberg, Kennedy, and Khandelwal (2020). Data on changes in Chinese tariffs on other countries are from Bown, Jung, and Zhang (2019). To analyze long-term effects, the data are summed over 24 months (i.e., divided into 2014/2015, 2016/2017, and 2018/2019), and the tariff data are adjusted proportionally. For example, the tariff rate of 20% for 12 months is 10% = (20% * 12 / 24) in this paper. Export growth from 2014/2015 to 2016/2017 was used to estimate ex-ante trends.

This paper is based on the Ricardian-Armington model, and the regression equation is as follows:

Here, represents exports, represents tariffs, represents the exporting country, represents the importing country, represents the industry, represents HS6 products, and represents the country-industry fixed effects. Then, the changes in the exporting country (US, China, other countries) and the changes in the importing country (US, China, other countries) are regressed separately. The above regression assumes that the responses of other countries in the world to tariffs are homogeneous.ofThe author then relaxed this assumption, allowing for heterogeneous responses from states to tariffs. This can be obtained by estimating trade from country to country separately in the regression equation above.

Due to the US-China trade war, global trade has increased, not decreased. Most countries have increased their exports to the US and the rest of the world. Furthermore, the heterogeneous responses of countries to tariffs are primarily determined by national characteristics, rather than by industry, product, or specialization. The main mechanisms underlying this heterogeneity include two factors: whether trade with the US and China is substitutive or complementary; and whether the supply curve is upward or downward. Specifically, winners in a trade war are typically countries that are substitutive to China in trade with the US and face a downward supply curve, such as Malaysia. Losers in a trade war also face a downward supply curve but are complementary to China, such as the Philippines.

Ju Jiandong

Director of the Center for International Finance and Economic Research (CIFER) at the National Institute of Financial Research, Tsinghua University, and Professor at Tsinghua University's PBC School of Finance.Ju Jiandong The article was reviewed and discussed. Professor Ju discussed the following four questions with the author. First, do cross-price effects exist? That is, when input-output relationships are taken into account, how do tariffs imposed on other products, in addition to tariffs on the product itself, affect the export of that product? Second, does a regional effect exist? For example, is there heterogeneity between the EU and ASEAN, i.e., during the US-China trade war, China's exports to the US decreased, but China's exports to ASEAN increased? What about China's exports to the EU? Other regional heterogeneities, such as those between developed and developing countries, and between US allies and non-allies, are also worth considering. Third, is there product heterogeneity? This does not refer to specific products, but rather to the heterogeneity in responses between high-tech products and non-high-tech products. Fourth, the author concludes by stating that global trade has grown, rather than declined, due to the trade war. Is this conclusion temporary, or will it hold true in the long term? Why does the trade-creating effect of US-China tariffs dominate the trade-diversion effect?

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