Impact of the US-China Trade War on Bystander Countries

Abstract

Abstract: This paper evaluates the impact of US-China trade war on bystander countries (untargeted by additional tariffs) by analysis of changes in import value of 9 taxed products from China and other 11 bystanders in the US from 2018 to 2019. The paper reveal incomplete substitution of Chinese imports on average after adoption of tariffs targeting China. The difference in value between decline of imports from China and aggregated growth of imports from other 11 countries are termed the gaps. The gaps are explained in four aspects: a) supply elasticity; b) heterogeneity across countries; c) global value chain; d) increased use of domestic products. In beneficiary-level, bystanders are divided into large beneficiaries, small beneficiaries and losers. This paper provides suggestions in firm-level, product-level and country-level to help bystanders take advantage of the trade war, which involve efficient reallocation of resources and transformations. Improved positions of countries except for the US and China contribute to both global economic growth and development and multi-polarization in the world.