The American–China Trade War and Spillover Effects on Value-Added Exports from Indonesia

Rudi Purwono,M Khoerul Mubin,Unggul Heriqbaldi,Miguel Angel Esquivias

doi:10.3390/su14053093

Abstract

This paper examines the impact of special tariffs between China and the United States (US) on their indirect trade partners via spillover effects. We applied a Value-Added Real Effective Exchange Rate (VA-REER) index to simulate how an increase in tariffs induces changes in demand for goods from Indonesia and selected Asian partners. We used the Input–Output Database (WIOD) to simulate the spillover effects across partners via the Global Value Chain (GVC) using data from 2000 to 2014. The results suggest that demand is doubly more responsive to prices (tariffs) when value-added (VA-REER) index is used instead of the conventional REER index (gross trade). We found that US tariffs on Chinese goods have a negative spillover impact on Indonesia’s exports. Meanwhile, the Chinese tariffs on American goods lead to small increased demand for Indonesian exports. We also found that US and China become equally crucial for Indonesia under the Value-Added REER scheme, concluding that the conventional REER approach may have underestimated the impact of US tariffs on Chinese goods. Finally, we found that Indonesia would be at risk to trade shocks if the US applies tariffs on China, Asian partners (Japan and South Korea), and the European Union (EU).

Highlights

Since 2018, trade tensions between the United States (US) and China have escalated, amidst concerns of currency manipulation [1], state subsidies [2], trade imbalances [3,4], re-launching of export strategies [5], intellectual property issues [6], national security [7], and many others [8]
This study examined the indirect impacts of the trade tensions between the United
Real Effective Exchange Rate (REER) indicator, we obtained a better interpretation of how China–US trade tensions impact

Summary

Introduction

Since 2018, trade tensions between the United States (US) and China have escalated, amidst concerns of currency manipulation [1], state subsidies [2], trade imbalances [3,4], re-launching of export strategies [5], intellectual property issues [6], national security [7], and many others [8]. From early 2018 to 2021, the average US tariffs on goods that originated from China went from 3% to nearly 20%, while the average Chinese tariffs on US goods soared from 8% to. Attempts to lower tariffs have been made, it is unclear how far tariffs could increase in further rounds. It remains an empirical question as to what extent the impacts are subsequently transmitted to these countries’ third top trade partners in the form of lower demand for exports.

Methods

Results

Discussion

Conclusion