The US-China trade war, which began in 2018, has had significant repercussions on global trade dynamics. While the trade dispute primarily involved the United States and China, it also created trade opportunities for bystander countries, rather than just causing shifts in trade patterns. A recent study by Fajgelbaum, Goldberg, Kennedy, Khandelwal, and Taglioni (2023) explores the economic implications of the trade war for these bystander nations and identifies key factors driving their trade responses.
The trade war resulted in a series of tariff hikes between the US and China, affecting a substantial portion of their bilateral trade. However, the study reveals that many bystander countries experienced a positive impact on their exports. Surprisingly, for some countries, exports to both the US and the rest of the world increased, while exports to China remained largely unaffected. This suggests that the trade war created trade diversion effects and expanded trade opportunities for these nations.
The research demonstrates that the extent of the trade war’s impact varied across countries. Some countries acted as substitutes for Chinese exports, while others responded as complements. Countries such as Vietnam, Thailand, Korea, and Mexico emerged as significant export “winners,” experiencing growth in global markets for products where US-China trade declined. On the other hand, countries like Ukraine, Egypt, Israel, and Colombia faced a decline in exports.
A noteworthy finding is that the variation in tariff elasticities by country played a crucial role in explaining the diverse trade responses among bystander nations. This suggests that country-specific factors, rather than sectoral scale elasticities or pre-war specialisation patterns, were key determinants of trade outcomes. The study highlights the interplay between supply and demand heterogeneity in these elasticities, underscoring the interdependence across export destinations.
These findings have important implications for both policy and further research. Policymakers should consider the potential trade opportunities that arise from changing global trade dynamics. Country-specific reforms and institutions are crucial in determining how countries’ exports respond to these changes. Additionally, future research should delve deeper into the specific country factors that drive trade responsiveness, enabling a better understanding of the complex dynamics in this evolving era of globalisation.
The US-China trade war had far-reaching consequences beyond the two involved nations, creating trade opportunities for bystander countries. While the trade war disrupted established trade patterns, it also opened doors for countries to expand their exports, particularly to the United States. The variation in tariff elasticities by country played a significant role in shaping trade responses. By focusing on country-specific factors, policymakers can capitalize on the changing global trade landscape and enhance their nations’ export potential in this new era of globalisation.