Retaliatory Tariffs Research Articles

The Impact of the U.S.-China Trade War on Air and Ocean Shipments

This paper estimates the impact of the U.S.-China trade war and the consequent increase in trade costs on air and ocean shipments between the two countries. Using panel data covering U.S. exports and imports with its trading partners from 2016 to 2021, we estimate gravity models and find evidence showing negative impacts of the trade war on both U.S. imports from China and U.S. exports to China. However, there are differential impacts on air shipments and ocean shipments. Specifically, we find that U.S. tariff increases on Chinese goods primarily had a negative effect on air imports from China, whereas China’s retaliatory tariffs on U.S. goods mainly had a negative impact on U.S. ocean exports. These findings contribute to the growing body of evidence on the effects of the U.S.-China trade war, highlighting the varying impacts of the trade war on different modes of transportation that drive the U.S.-China trade relationship.

Retaliatory Tariffs of China during the Trade War: A Firm-level Overview

Abstract In this paper, we offer a comprehensive survey of the latest research regarding the pass-through of tariffs during the trade war between China and the United States, with an emphasis on the investigations conducted from the Chinese perspective. While one might anticipate symmetric effects on both the United States and China, these nations exhibit substantial disparities in terms of trade structure and policy. We underscore two salient concerns that have been largely neglected in extant literature: (1) the exemption of processing imports from retaliatory tariffs in China, which may engender biased estimations of pass-through at the product level, and (2) the heterogeneous distribution of retaliatory tariffs across product classifications, firm ownership structures, and geographical regions, necessitating more granular estimations at the firm level. Furthermore, we provide a detailed description of firm import tariffs, emphasizing the crucial role of tailored policies in mitigating the repercussions of the trade conflict.

Comments by Mary-Françoise Renard on Retaliatory Tariffs of China during the Trade War: A Firm-level Overview

Comments by Mary-Françoise Renard on Retaliatory Tariffs of China during the Trade War: A Firm-level Overview

Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector

Abstract This paper estimates the relationship between the U.S. tariff increases of 2018-2019 and outcomes in domestic manufacturing. Despite being intended to boost manufacturing activity, we find U.S. industries more exposed to tariff increases experience relative reductions in employment, as a small positive effect from import protection is offset by larger negative effects from rising input costs and retaliatory tariffs. Higher tariffs are also associated with relative increases in producer prices due to rising input costs. Lastly, we document broader labor market impacts, as counties more exposed to rising tariffs exhibit relative increases in unemployment and declines in labor force participation.

A Bargaining Theory of US–China Economic Rivalry: Differentiating the Trade and Technology Wars

Abstract This article examines the outbreak and persistence of US–China economic war, which comprises both the trade war, featured with retaliatory tariffs, and the technology war, featured with restrictions on Chinese access to US technologies. Building on the analytical framework of bargaining and war, I argue that different components of the economic war emerged from distinct causes. The outbreak of the trade war was primarily driven by the information problem, characterized by mutual uncertainty and the lack of effective communications. The technology war was largely a result of the commitment problem driven by the existing power’s concern regarding potential future changes in the balance of power. After examining the initiation stage during the Trump era, I further analyze how the economic war has unfolded during the Biden administration. While the prospect of a new trade war seems unlikely as mutual uncertainty diminishes, existing tariffs remain as the commitment problem on trade issues has become more critical. The preventive technology war is expected to persist, reflecting Washington’s ongoing concerns over China’s growing leadership in technology.

The US–China Trade War: Quantify the Negative Shocks to Local Housing Markets and Land-Based Finance in Chinese Cities

The US–China trade war’s impacts on Chinese cities’ housing markets and local public finance are examined. In China, institutional reforms and ever-growing housing prices in the past resulted in land-based finance that city governments heavily rely on land sales (state-land use-right transfers) for fiscal revenues. However, the trade war has severely struck the cities’ housing markets and land sales since 2018. This article applies 2016–2019 data to a shift-share analysis and finds the following. Imposed by the US on imports from China, the retaliatory tariffs hurt Chinese cities’ production and caused employment and wage declines and firm exit. Importantly, the tariff shocks also affected housing and land markets. A one percentage point (p.p.) increases in the (weighted average) tariffs applicable to cities’ exports reduced cities’ new home sale volume by 3.1% and prices by 1.2%. Besides, city governments’ land sale revenues dropped 7.6%. Since the applicable tariffs to cities increased by 1.62 p.p. on average and 10.4 p.p. at the extreme by 2019, many cities’ housing markets and public finance have hit trouble. The resilient cities to the tariff shocks were those with less overbuilding, more population, more diversified industries or export destinations, or a stronger tertiary sector.

The US–China trade war and corporate innovation: Evidence from China

AbstractThis study investigates the effect of the US–China trade war on corporate innovation in the context of China. We find that the first‐order effect of the trade war on corporate innovation is significantly negative. That is, Chinese firms exposed to the US–China trade war have lower numbers of patent applications and invention patent applications. Underlying mechanisms include reductions in market expansion and innovation input. Our findings are more pronounced for firms connected to the United States and those suffering financial distress and for non‐state‐owned enterprises. We further contribute to the literature by showing that firms with developed managerial ability, more confident managers, and better corporate social responsibility performance tend to increase innovation for competitiveness in response to the trade war. Finally, we explore the effect of Chinese retaliatory tariff shocks on corporate innovation and find that US tariffs and Chinese retaliatory tariffs hinder corporate innovation in China.

EU 탄소국경조정제도의 경제적 파급영향 분석

The purpose of this study is to analyze the impact of the EU CBAM on international trade and suggest policy of reaction for Korea. The results of the analysis are as follows. First, we find that when the EU unilaterally imposes a carbon tariff, and its trading partners accept it, the EU's export competitiveness increase, but the exports of trading partners such as India and Russia decrease significantly. Second, when trading partners react to the EU's actions by imposing retaliatory tariffs, the EU's exports decline, and the losses of its major trading partners are reduced. Furthermore, intra-regional trade between EU countries increases with the introduction of CBAM, while trade with non-EU countries decreases significantly. Finally, the analysis shows a significant decrease in steel and aluminum trade among the world trade goods. In conclusion, if the EU does not take the initiative to talk with its trading partners to ensure they understand and accept the introduction of CBAMs, they are likely to take retaliatory measures, resulting in a slowdown in global trade. Therefore, Korea should monitor closely the progress of discussion related to this issue and prepare policy to minimize the impact on trade from such action.

Investigating Economic Effects of 2018 Steel Tariff Imposition In USA


 In 2018, the Trump administration imposed a 25% tariff on steel imports from a number of countries. The administration justified this action by referring to section 232 of the 1962 Trade Expansion Act, which allows for the imposition of tariffs for ‘national security reasons.’ While the domestic American steel industry applauded the action, the tariffs have been extremely controversial and elicited consternation among countries and industries negatively affected.
 Overall, the tariffs had an initial positive impact on the steel industry, increasing both employment in American steel-producing firms and increasing prices charged for the high-demand commodity. However, this effect was relatively short-lived and was likely not as pronounced as the Trump administration would have preferred. Meanwhile, steel-consuming industries, such as the automobile industry, saw a steep rise in prices, a loss of competitiveness, and a significant drop in employment rates. Given that substantially more labor is employed in the steel-consuming industry as compared to the steel-producing industry, those negatively impacted by the use of tariffs significantly exceeded those who benefitted from them.
 Beyond the direct impacts on steel-producers and steel-consumers, the 2018 tariffs also had the effect of provoking retaliatory tariffs on a variety of American industries, which created to a phenomenon known as ‘cascading protection’ as ever more domestic industries, which experienced a loss of competitiveness as a result of the tariffs, lobbied the administration for the imposition of further tariffs.

Competition and trade policy in the world cotton market: Implications for US cotton exports

AbstractCotton is a cornerstone of global fiber markets, and many importing and exporting countries play important roles in the global cotton market. The US cotton sector has long been one of the world's largest. However, Brazil's cotton production has rapidly grown, and the country has become one of the leading cotton producers, accounting for an ever‐increasing share of world cotton production and trade. This meteoric rise has put Brazil's cotton sector in frequent competition with the United States over export sales and market share. We empirically investigate how the expansion of the Brazilian cotton sector has impacted the US cotton sector's position in world markets by quantifying the extent to which rising Brazilian production has caused reallocations of US exports. We also explore how the recent US–China trade war affected these market dynamics by assessing the impacts of China's retaliatory tariffs on US cotton. Our results show that Brazil's cotton production has caused a major disruption to US cotton exports, resulting in a significant reduction in US exports to large cotton importers such as China, Vietnam, and Pakistan, and that these trends were reversed (at least temporarily) by the US–China trade dispute. By illustrating how competitive forces and trade disputes have shaped recent market dynamics for this key commodity, our work adds to the growing literature examining the interplay between competition and trade policy in the global agricultural sector.

Analysis of the payments from the coronavirus food assistance program and the market facilitation program to minority producers.

This paper examines the payments made to minority producers, focused on African American producers, from the COVID-19 program, Coronavirus Food Assistance Program (CFAP), of the United States Department of Agriculture (USDA) and compares it with one of the other more recent ad hoc program payments, the Market Facilitation Program (MFP). There were two rounds of the CFAP, and combinedly (as of March 2022), the program made direct payments of $31.0 billion ($11.8 billion from CFAP 1 and $19.2 billion from CFAP 2) starting in 2020. The MFP made a total payment of $23.5 billion (in two rounds, MFP 2018 and MFP 2019) to producers affected by the retaliatory tariffs placed on US producers by trade partners across multiple years. CFAP made almost $600 million in direct payments to minority producers, including Black or African American producers. Black or African American only producers received more than $52 million in CFAP payments. CFAP payments were proportional to the value of agricultural commodity sold for most minority producers. The 2017 Census of Agriculture showed that the majority of minority producers, including African American producers but excluding Asian producers, raised livestock. CFAP made the highest payments to livestock minority producers. The CFAP payment distribution pattern shows that payments reached minority producers who often did not receive Government payments. CFAP made more payments and as a share of total program outlays to minority producers compared to MFP. However, for Black or African American only producers, even though the magnitude increased (because CFAP disbursed more funds compared to MFP), the share of payment received did not increase.

Tariffs, agricultural subsidies, and the 2020 US presidential election

AbstractThis paper provides evidence on the effects of US and Chinese trade policies on the 2020 US presidential election. In response to a series of US tariffs imposed on Chinese goods, China imposed retaliatory tariffs, especially on US agricultural products, which largely affected Republican‐leaning counties. The US government then subsidized US farmers by providing direct payments through the Market Facilitation Program (MFP) to mitigate the Chinese retaliatory tariffs. Using the universe of actual county‐level MFP disbursement data, we document that MFP payments relative to the Chinese retaliatory tariff exposure were higher in solidly Republican counties, implying that the Trump administration allocated rents in exchange for political patronage. We also find that MFP payments outweighed the estimated impact of Chinese retaliatory tariffs and led to an increase in the Republican vote share in the 2020 presidential election. Finally, we uncover evidence that China's retaliatory trade policy and the corresponding US agricultural policy exacerbated political polarization in the US, especially the rural–urban divide.

The incidence of foreign market tariffs on farmland rental rates

We estimate the impact of tariffs faced by US agricultural exports on farmland rents. The localized tariff is determined by the average of tariffs across trading partners for the crops produced within the county. We utilize shift-share designs to avoid endogeneity concerns that arise because factors affecting rents could also affect trade flows and cropping patterns. Using the county-level data from 2008 to 2017, we find that a one percentage point decrease in the localized tariff increases rents by 3%–6%. The 2018 Chinese retaliatory tariffs would have decreased rents by about 3% in the absence of any government support.

Whiskey, Brexit, and the Trade War

ABSTRACT In 2020, the UK officially withdrew from the EU (Brexit), ending its obligation to continue the EU’s retaliatory tariffs on U.S. products. Recent actions by the UK government suggest that these retaliatory tariffs will eventually be eliminated. We present a dynamic modeling framework and estimate whiskey demand in the UK by source (e.g., U.S. whiskey, Irish whiskey, etc.). Estimates are then used to simulate the impacts of the retaliatory tariff on U.S. whiskey. If the tariff is eliminated, U.S. whiskey exports to the UK should fully recover and could even exceed pre-trade war levels.

Subsidi Pertanian Amerika Serika Dalam Kasus Perang Dagang Amerika Serikat dan China Tahun 2018-2019

The beginning of the trade war between the United States and China was caused by the imposition of United States tariffs on several Chinese products. The imposition of these tariffs led to retaliatory tariffs from China against the United States. China's retaliatory tariffs have an impact on one of the United States' sectors, namely the agricultural sector. The United States agricultural sector is an important sector in the agricultural trade sector in the United States. With the retaliation of tariffs, the agricultural sector experienced a significant decline. In response to this incident, the United States government made a policy to overcome this problem by making a new policy, namely subsidies. This study aims to describe and find out how the implementation of United States agricultural subsidies in the case of the 2018-2019 trade war using qualitative methods and data sources sought using primary and secondary data. To analyze this research, the writer uses neoclassical theory and national interest to find out how the implementation and perspective of the policy are. The results of this study indicate that there are 3 programs implemented by the United States to overcome the trade war, namely MFP, FPDP, ATP. However, these programs reap many pros and cons. The subsidy policy is a policy that endangers the United States economy because it disrupts the market mechanism.

Casualties of trade wars

Although trade wars have existed throughout modern history, there is little empirical evidence as to how countries choose which products to target for retaliatory tariffs. We develop a political economy model of trade policy to explain a country’s choice of product for retaliation and test the implications of this model using the choices of seven countries in two retaliation episodes: (1) the US imposition of steel and aluminum tariffs in 2018 and (2) the US passage of the Continued Dumping and Subsidy Offset Act (CDSOA) in 2000. The empirical results indicate that countries are more likely to sanction products with higher trade values and those in which they can extract terms-of-trade welfare, suggesting that trade wars move countries back to a terms-of-trade driven prisoner’s dilemma equilibrium. We find a significant amount of heterogeneity in the degree to which countries consider the political importance of producers when developing their retaliation list; for example, only the EU and Canada targeted products produced in politically important locales in 2018.

U.S. Almond Exports and Retaliatory Trade Tariffs

The U.S. is the top producer, exporter, and consumer of tree nuts in the world. Tree nuts are a significant part of U.S. agricultural exports to the world. In 2019, the U.S. exported about USD 9.1 billion worth of tree nuts, just behind soybean exports at USD 18.7 billion. Tree nuts, such as almonds and pistachios, are mostly produced in the state of California. California produces 100% of U.S. commercial almonds. Globally, almonds are the leading U.S. tree nut export in both value and volume. Almonds are shipped to over 90 countries annually. This study aimed to investigate factors affecting the export demand function for U.S. almonds in major destination countries and evaluate the impact of the retaliatory trade tariffs policy by some of the importing countries on the U.S. almond exports. The currently available literature does not fully address these issues. We identified the top five almond export destinations, which were in Europe and Asia, namely, China/Hong Kong, Germany, India, Japan, and Spain, which account for more than 50% of U.S. almond imports. We used a double-log export demand equation that is well referenced in the literature and economic theory to identify the significant explanatory variables affecting the U.S. almonds export demand function. We also tried to estimate the impact of retaliatory tariffs on almond exports imposed by the major importing countries. Our results showed that U.S. almond and pistachio prices, real exchange rates, and gross domestic products of importing countries were significant factors that affected U.S. almond exports. The results showed that the imposed retaliatory tariffs had no negative effect on U.S. almond exports. This could have been because the study ended in 2019 and did not involve enough data to fully evaluate the impact of the retaliatory trade tariffs policy. U.S. almond exports have market concentration and strong market power in international markets. The efforts toward more sustainable production of almonds to solidify an already established market share in the world almond markets and against substitutes, such as pistachios, seem to be a sound strategy and focus of the U.S. almond agribusinesses and exporters.

China-US trade friction and welfare: The role of regional trade agreements

Since 2018, the U.S. has enacted several waves of import tariff increases on China, and China has imposed retaliatory tariffs on the U.S. Based on a quantitative trade model, we evaluate the impact of this China-US trade friction on the welfare of China and find that the adverse impact on China is larger than it is on the U.S. We further decompose the welfare impact into the terms-of-trade effect and tariff-revenue effect. We also analyze whether and to what extent China's involvement in the Regional Comprehensive Economic Partnership (RCEP) offsets the losses due to trade friction. Our model shows that the RCEP slightly benefits China by reducing the negative impact of China-US trade friction by 11.92%, with Manufacturing of Metal Products being the largest contributor to this effect.

Wine: The punching bag in trade retaliation

Wine is an extensively traded product that is a common target for retaliation in trade disputes. We analyze the impact of tariffs and tariff retaliation by estimating a structural gravity model of global wine trade. We then simulate the effects of tariffs and tariff retaliation, as well as the effects of trade liberalization, on trade and welfare in the international market for wine. We show that recent trade disputes threaten to reduce wine trade by nearly $340 million annually and significantly reduce consumer welfare, while complete trade liberalization would expand trade by roughly $76 million.

Anxiety or pain? The impact of tariffs and uncertainty on Chinese firms in the trade war

The unexpected outbreak of the U.S.-China trade war led to dramatic increases in the import and export tariffs confronting Chinese firms, and ushered in an era of unprecedented trade policy uncertainty (TPU). To assess the effects of this development on the operations of Chinese firms we adopt a new textual analysis approach to listed firms’ annual reports that allows us to create measures of TPU that vary over firms and time. Linking our new TPU measures to firm-level trade war exposure shows that increases in U.S. tariffs and Chinese retaliatory tariffs elevated firm-level TPU. The effects of Chinese firm-level tariff changes on firm TPU are heterogeneous: smaller firms experienced the most pronounced increases while firms that were more diversified in terms of partner countries were more insulated. Importantly, connecting firm-level increases in TPU during the trade war with subsequent firm performance reveals notable impairment of firm operations. Our estimates indicate that Chinese firms hit by a one standard deviation increase in TPU during the trade war reduced firm-level investment, R&D expenditures, and profits by 2.3, 2.3, and 11.5 percent, respectively.