Responses of Exporters to Trade Protectionism: Inference from the U.S.-China Trade War

Abstract

This paper investigates how exports respond to trade protection by studying the U.S.-China trade war in 2018. Using monthly customs data in China from January 2017 to May 2019, we find that the launch of the trade war against Chinese exports by the U.S., on average, reduces Chinese total exports to the U.S. by 8.91%. Further decomposition shows that the reduction in exports is mostly explained by a decrease in quantity, with prices relatively unchanged. Meanwhile, negative trade shocks cause export diversion to countries that are closer and have larger economies, and exports in R&D-intensive, high-skill-labor-intensive, high-labor-income-share, and upstream industries have been diverted even more. Heterogeneous analyses show that industries with comparative advantage, high export growth, large export value, and high elasticity of substitution are more responsive to trade protection.