Trade and Trade Diversion Effects of United States Tariffs on China

Since mid-2018 the United States of America and China have been locked in a trade confrontation which has resulted in several rounds of retaliatory tariffs. This paper investigates the impact the United States tariffs on China on United States imports. This paper finds that United States tariffs against China have resulted in a reduction in imports of the tariffed products by more than 25 percent. The analysis finds that China’s export losses in the United States have resulted in trade diversion effects to the advantage of Taiwan Province of China, Mexico, the European Union and Viet Nam among others. The analysis also finds that those effects have increased over time. The analysis finds some preliminary evidence that Chinese exporters may have started to bear part of the costs of the tariffs in the form of lower export prices. Overall, the results indicate that the United States tariffs on China are economically hurting both countries. United States losses are largely related to the higher prices for consumers, while China’s losses are related to significant export losses.

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