Who Is Winning the Trade War?
As the Sino-American trade war approaches its fourth year, there is ample evidence to show that both sides have been harmed by the tit-for-tat exchange of protectionist measures. But, far from spelling an end to globalization, the conflict may have laid the foundation for an even more robust world trading system.
NEW HAVEN – The United States-China trade war started in 2018 and has never officially ended. So, which side has been “winning” it? Recent research offers an unambiguous answer: neither. US tariffs on Chinese goods led to higher import prices in the US in the affected product categories, and China’s retaliatory tariffs on US goods ended up hurting Chinese importers. Bilateral trade between the two countries has tanked. And because the US and China are the world’s two largest economies, many regard this development as a harbinger of the end of globalization.
Yet the “deglobalization” argument ignores the many “bystander” countries that were not directly targeted by the US or China. In a new paper investigating the effects of the trade war on these countries, my co-authors and I come to an unexpected conclusion: Many, but not all, of these bystander countries have benefited from the trade war in the form of higher exports.
To be sure, one would expect exports from third countries (Mexico, Vietnam, Malaysia, etc.) to take the place of Chinese exports to the US. But what is surprising is that these countries increased their exports not only to the US but also to the rest of the world. In fact, global trade in the products affected by the trade war seems to have increased by 3% relative to global trade in the products not targeted by tariffs. That means the trade war did not just lead to reallocation of third-country exports to the US (or China); it also resulted in net trade creation.