Abstract
AbstractThis paper considers the indirect impact the recent tariff increases between the United States and China can have on third countries through links in global supply chains. We combine data from input–output relationships, imports and tariffs, to calculate the impact of the tariff increases by both the United States and China on cumulative tariffs paid by third countries. We show that the tariff hikes increase cumulative tariffs for other countries and thus hurt trade partners further downstream in global supply chains. We also show that this is particularly important for tariff increases on Chinese imports in the United States. These are likely to be used as intermediates in production in the United States, which are then re‐exported to third countries. The most heavily hit third countries are the closest trade partners, namely the EU, Canada and Mexico. We estimate that the tariffs impose an additional burden of around 500 million to 1 billion US dollars on these countries. China's tariffs on US imports have less of an effect.
Highlights
The on-going “trade war” between the US and China, where both countries hike up tariffs on clearly specified products, has been a subject of controversial public and political discussion even since before it started
We show that the tariff hikes increase cumulative tariffs for other countries and hurt trade partners further downstream in global supply chains
We show that this is important for tariff increases on Chinese imports in the US
Summary
The on-going “trade war” between the US and China, where both countries hike up tariffs on clearly specified products, has been a subject of controversial public and political discussion even since before it started. The contention among US government officials is, that this will benefit the US, if not in the short in the long run. This view of the world is, debated strongly by academic economists. Balistreri et al (2018) reach a similar conclusion, as do Li et al (2018) and Bellora and Fontagne (2019). These studies on the US – China dispute mirror a more general literature on the costs of protectionism, such as Ossa (2014), Costinot and Rodriguez-Clare (2014) and Felbermayr et al (2015)
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