NEW YORK – With the Winter Olympics underway in Beijing, the absence of American diplomats signifies the continued deterioration of political and economic relations between the U.S. and China. But what does that mean for the rest of the world? A new study from Columbia Business School finds that the U.S.-China trade war has led to an increase in global trade, a diversified supply chain for the products targeted by the tariffs, and significant implications for the future of globalization.
In a co-authored paper on the impacts of the U.S.-China trade war on other countries, Columbia Business School Professor Amit Khandelwal and his research partners find that these bystander countries responded to tariffs by reducing trade with China and increasing trade with the United States. The study also showed that these countries increased exports of tariffed products to one another. The study concluded that the aggregate responses globally show that the trade war raised global trade overall by 3.0%, suggesting that the trade war created new trade opportunities, rather than simply reshuffle trade flows.
“Until now, most of the conversation on the U.S.-China trade war has focused on the two superpowers, but it’s important to examine how it has impacted trade in other countries,” said Professor Amit Khandelwal, the Jerome A. Chazen Professor of Global Business at Columbia Business School. “There was a vast difference in response across countries. Some benefited, others didn’t, and a few were worse off. But the most important takeaway is that on average the trade war increased and diversified global trade.”
In the study, Khandelwal and the research team of Princeton University Professor Pablo Fajgelbaum, Yale University Professor Pinelopi Goldberg, University of California Berkeley Professor Patrick Kennedy and Daria Taglioni of the World Bank analyzed data collected over a two-year period on the way countries responded with export behavior to tariffs being imposed on specific products. They considered four sets of tariff changes as part of the U.S.-China trade war and analyzed trade patterns of products in nine sectors: agriculture, apparel, chemicals, machinery, materials, metals, minerals, transport, and miscellaneous.
Key findings include:
- The U.S. and China reduced trade with each other, but many countries reallocated tariff-targeted exports to the U.S. and away from China and increased their tariff-targeted exports to the rest of the world.
- The tariffs from the trade appear to have increased global trade, rather than reduced it, as many initially feared.
- This study proves that globalization, at least measured by global exports, isn’t slowing, with countries outside the US and China driving growth.
“This trade war has stimulated trade amongst other countries, increasing globalization, rather than ending it as many people feared it would,” said Professor Khandelwal. “The spillover effect of the deterioration of economic and political relations of these two superpowers has proven to be an opportunity for other nations.”
See the full study The US-China Trade War and Global Reallocations here.
To learn more about the cutting-edge research being conducted at Columbia Business School, please visit www.gsb.columbia.edu.
About the researcher
Professor Khandelwal teaches an elective course on International Business. His research interests examine issues in international and development economics, including the strategic response of...Read more.