Essays on the US-China trade war

Date

2020-12

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Abstract

This dissertation examines the impact of the US-China trade war on international trade flows. The first essay examines the impact of the several rounds of tariffs the US imposed on imports from China and China's subsequent retaliation. We derive a two-country bilateral trade flows model that accounts for tariffs, trade costs, and geographic factors. We use the Ricardian theory of two countries that extends to the continuum of goods developed by Dornbusch et al. (1997) and extended by Opp (2010). We then account for productivity differences between the two countries by parameterizing the underlying distribution of productivity levels in the two countries by following Eaton and Kortum (2020). We first use 2017 bilateral import data between the US and China on agricultural and non-agricultural products from the UN Comtrade database and 2018 tariff data to determine the scope of coverage of the US's section 232 and 301 tariffs and China's retaliatory tariffs of 2018. We then construct a panel data of bilateral trade flows from the UN Comtrade from 2000 to 2018. We employ advanced estimation procedures to account for zero trade flows, heteroskedasticity, and unobserved heterogeneity. Our results suggest that the trade war tariffs did not substantially impact import flows in both countries, but the non-tariff factors associated with trade wars.

Our empirical results suggest that the tariff war effect depends fundamentally on whether the analysis focuses on agricultural or non-agricultural sectors. For China, agricultural imports from the US suffered a considerable decline compared to non-agricultural imports, while US non-agricultural imports from China declined by a larger proportion compared to agricultural imports. We also find that the trade flow decline due to the trade war was not due to the tariff increase, but due to the non-tariff factors associated with the trade war such as speculation and uncertainty. The trade war non-tariff factors were more effective at cutting down China’s imports from the US than reducing the US's imports from China in 2018.

The second essay examines how the US-China trade war and the US and China's divergent trade policy actions have altered the US's and China's agricultural and non-agricultural import flows from key trade partners. We first identify the US's and China's top-ten suppliers of agricultural and non-agricultural products from 2014 to 2018. We then empirically estimate the trade flow changes among the top-ten suppliers of agricultural and non-agricultural products due to the US-China trade war. To uncover these effects, we use the structural gravity model of Anderson and Van Wincoop (2003) and unidirectional import data on products targeted by the trade war tariffs collected from the UN COMTRADE database. We employ advanced estimation procedures to account for zero trade flows, heteroskedasticity, and multilateral resistance terms.

Our results suggest that the US and China substituted agricultural imports with products from other countries with large magnitudes than non-agricultural imports. Increases of the US's imports of agriculture products from other suppliers relative to the US's imports from China range from 17.4 to 73.3 percent, while increases in China's imports from other suppliers relative to imports from the US range from 242.1 to 380.7 percent.


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Keywords

US-China trade war, Ricardian theory, International economics

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