An Analysis of the Impact of Sino-US Trade Friction Based on the Tariff Lists

Abstract

With the implementation of Trump’s America First” Strategy, the United States has launched a series of trade frictions against China. So far, China and the U.S. have experienced multiple rounds of imposition escalation of additional tariffs. On April 3, the U.S. officially announced the list of Chinese goods worth US$50 billion to be imposed on a 25% tariff based on the results of a Section 301 Investigation”. On April 4, China announced the first corresponding list of products that the U.S. exports to China, marking the beginning of a tariff game between China and the U.S. On June 15, the U.S. adjusted the list and announced its final version of the $50 billion tariff list that is to be implemented, and China developed counter-measures in response. Both of the tariff lists of the two sides are separated into two sub-lists and are successively implemented on July 6 and August 23, covering $34 billion and $16 billion of goods respectively（refered to as List 1 and List 2 thereafter）. The two countries thus entered a tit-for-tat precision strike” stage. Since then, the U.S. has increasingly pushed Sino-US trade friction to a heated stage, making the Sino-US economic and trade relations and even the multilateral trading system gradually fall into the Trump trap”. Using the COMTRADE and TRAINS database with the WITS-SMART model, we simulate the trade and welfare effects of the trade friction on both countries, based on the lists of products subject to 25% additional tariffs announced by the U.S. and China at the 6-digit level of HS classification. Our analysis focuses on the two final product lists implemented by China and the U.S., namely List 1 and List 2, and simulates their effects on trade and welfare respectively. Then we conduct a comparative analysis of the preliminary lists announced in April with the two sub-lists implemented, to explore the different impact of the proposed actions and the actual implementation, and further discuss the adjustment and characteristics of the strategies of China and the U.S. in the trade friction. Our main conclusions are: （1）Concerning the trade effect, the bilateral trade between the two countries will be substantially reduced, and the decrease in the U.S. imports from China will be larger than that of China’s imports from the U.S.（2）Concerning the welfare effect, China’s overall welfare losses are more than 2.6 times that of the U.S.（3）Concerning the injury to the industries, mechanical and electrical industries are the most injured industries in the U.S. For China, the most affected industries are soybeans and automobiles.（4）Concerning the trade diversion, the U.S. imports from China will be deflected to markets such as Mexico, Japan and Germany, and China’s imports from the U.S. will be mainly deflected to Brazil, Germany and Japan.（5）From the comparison of the strategies, China’s counter-measures appear to be more focused than those of the U.S., but lack flexibility and efficiency. Therefore, for China, it is necessary to be prepared for a long-term and all-out trade war, and establish a more comprehensive trade friction policy response system. Compared with the existing research, the marginal contributions of this paper are as follows: （1）On the object research, the existing empirical research is based on hypothesized scenarios to simulate the effect of Sino-US trade friction, such as Cui et al.（2018）, while we directly use the tariff lists issued and implemented to systematically evaluate the effects of Sino-US trade friction. Moreover, we select the three corresponding tariff lists in the trade friction as our object of research, allowing a more comparable analysis on the effects and strategies between the two countries.（2）On the research content, this paper analyzes the trade reduction effect, trade diversion effect and welfare effect of Sino-US trade friction on the two countries, and discusses the adjustment and characteristics of the strategies in Sino-US trade friction by comparing the preliminary list issued with the final list implemented. The current discussions by domestic scholars on Sino-US economic and trade frictions focus on the political economic analysis. In contrast, this paper attempts to deepen the policy discussion through a more in-depth empirical analysis of economic effects, which can be a useful exploration. （3）On the research method, although the existing studies, including Li, et al.（2018）, Guo, et al.（2018）, Cui, et al.（2018）and Bollen and Rojas-Romagosa（2018）, have adopted the Computable General Equilibrium（CGE）model to simulate the impact of Sino-US trade friction, they are not based on the actual and detailed tariff lists issued by the two countries, but on assumptions such as a 45% tariff increase on the broad sectors. In contrast, based on the actual tariff lists issued by China and the U.S. at detailed product level, the quantitative analysis in this study not only helps to understand the international economic impact of Sino-US trade friction, but also has important practical implications for China’s strategy adjustment.