Economic Impact of U.S. Tariff Hikes: Significance of trade diversion effects

==============
To read the full text:
https://www.rieti.go.jp/en/columns/a01_0794.html
==============

There is concern that the U.S. tariff hikes under the Trump administration will adversely affect the world economy. That said, U.S. tariff hikes will not be uniform across economies. The degree of economic impact should vary among economies in positive and negative directions alongside the magnitudes of impact.

In 2018, the United States started to hike tariffs on impots from China and China responded by raising import tariffs on the United States. The average U.S. tariff rate on imports from China rose from 2.6% in January 2018 to 17.5% in September 2019 according to Bekker and Schroeter (2020). On the other hand, China’s average import tariff rate on the United States rose from 6.2% to 16.4% in the same period.

In the meantime, U.S. trade deficits with China decreased from 375.2 billion U.S. dollars (USD) in 2017 to 295.4 billion USD in 2024. That said, U.S. trade deficits with Japan and Germany remained broadly unchanged but those with Mexico, Canada, Viet Nam and others increased significantly resulting in the expansion of overall U.S. trade deficits from 792.4 billion USD to 1,202.2 billion USD.

U.S. imports from China decreased to some extent but were replaced by imports from North America, Asia and others and increases in U.S. domestic production were limited. These data clearly indicate that bilateral tariff hikes decrease bilateral trade but create trade for third-party economies due to trade diversion effects.

Related Papers

"The Structure of Supply Chains and the Impacts of Trump 1.0 Tariffs: Evidence from Japanese firms’ sales to North America"
ANDO Mitsuyo (Keio University) / HAYAKAWA Kazunobu (Institute of Developing Economies) / KIMURA Fukunari (Consulting Fellow, RIETI) / YAMANOUCHI Kenta (Kagawa University)
https://www.rieti.go.jp/en/publications/summary/25050008.html

"The Direct and Indirect Effects of the Belt and Road Initiative on Exports to China"
LI Haonan (Waseda University) / TODO Yasuyuki (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/25040009.html

"Evaluation of the Impacts of Trade Restrictions between China and Japan"
TAKEDA Shiro (Kyoto Sangyo University) / HIGASHIDA Keisaku (Kwansei Gakuin University) / YOMOGIDA Morihiro (Sophia University)
https://www.rieti.go.jp/en/publications/summary/24090006.html

“Economic Disintegration and Multinational Production: Evidence from Brexit”
HUANG Hanwei (City University of Hong Kong) / SENGA Tatsuro (Fellow (Specially Appointed), RIETI) / Catherine THOMAS (London School of Economics and Political Science) / ZHANG Hongyong (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/23060001.html

Related Articles

"Trump 2.0 and Trade: Don’t be swayed by tariff hikes"
JINJI Naoto (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/jinji-naoto/01.html

"A New Phase of the U.S.-China Trade War: Japan should support the order through cooperation with emerging countries"
KIMURA Fukunari (Consulting Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/kimura-fukunari/05.html

"New Era of APEC & International Economic Order in the Asia-Pacific Region"
HATTORI Takashi (Consulting Fellow, RIETI), ISHIDO Hikari (Professor of Chiba University), OBA Mie (Professor of Kanagawa University), TERADA Takashi (Professor of Doshisha University)
https://www.rieti.go.jp/en/papers/contribution/hattori-takashi/02.html

Related Events

BBL Seminar "The Great Trade Hack: How Trump's trade war fails and global trade moves on"
Speaker: Richard BALDWIN (Non-Resident Fellow, RIETI / Professor of International Economics, IMD Lausanne)
https://www.rieti.go.jp/en/events/bbl/25060601.html

RIETI-USC Seminar "Economic Security, US-Japan Cooperation and the Future of Globalized Production"
Participants: Shujiro URATA (Chairman Emeritus/Distinguished Senior Fellow, RIETI), Shigetoshi IKEYAMA (Vice Chairman, RIETI), Kenko SONE (Consul General of Japan in Los Angeles), Saori KATADA (Professor of International Relations/ Director of the Center for International Studies, USC), Yasuyuki TODO (Faculty Fellow, RIETI / Professor, Faculty of Political Science and Economics, Waseda University), Ulrike SCHAEDE (Professor of Japanese Business, University of California, San Diego), and others
https://www.rieti.go.jp/en/events/24112201/summary.html

Our Latest Discussion Papers

"Patent Information Disclosure and Market Reactions: Empirical investigation by using text-based novelty and impact indicators"
DANG Jianwei (Tongji University) / MOTOHASHI Kazuyuki (Faculty Fellow, RIETI) / ZHAO Quihan (University of Tokyo)
https://www.rieti.go.jp/en/publications/summary/25100002.html

"Population Aging and Business Successions: A macroeconomic perspective"
MIYAKAWA Daisuke (Waseda University) / OIKAWA Koki (Waseda University) / UEDA Kozo (Waseda University)
https://www.rieti.go.jp/en/publications/summary/25100001.html

"Fiscal Reform, Government Debt and Female Labor Supply in Japan"
CUI Naiyue (Kobe University) / HSU Minchung (GRIPS) / HU Yunfang (Kobe University)
https://www.rieti.go.jp/en/publications/summary/25090024.html

"Social Capital, Retirement and Cognitive Aging: Evidence from a Japanese longitudinal study"
ZHAO Meng (Gakushuin University) / YIN Ting (Fellow (Specially Appointed), RIETI)
https://www.rieti.go.jp/en/publications/summary/25090023.html

"The Impact of Military Technology Development on Innovation: Evidence from prewar and wartime Japanese secret patents"
KOTANI Atsuki (University of Tokyo) / NAKAJIMA Kentaro (Faculty Fellow, RIETI) / OKAZAKI Tetsuji (Faculty Fellow, RIETI) / SAITO Yukiko (Senior Fellow (Specially Appointed), RIETI)
https://www.rieti.go.jp/en/publications/summary/25090021.html

"US-Japanese Knowledge Transfer Program in the Aftermath of WWII"
Michela GIORCELLI (University of California) / HIGUCHI Yuki (Sophia University) / TAKAYASU Yutaro (University of Tokyo) / TANAKA Mari (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/25090020.html

"Inbound Tourism and Tourists’ Preferences for Accommodation Quality"
SAITO Hisamitsu (Hokkaido University) / MATSUURA Toshiyuki (Faculty Fellow, RIETI) / ENDOH Masahiro (Keio University)
https://www.rieti.go.jp/en/publications/summary/25090018.html

List of Discussion Papers:
https://www.rieti.go.jp/en/publications/act_dp.html
List of Upcoming and Past Symposiums:
https://www.rieti.go.jp/en/events/symposium.html
List of Upcoming and Past BBL Seminars:
https://www.rieti.go.jp/en/events/bbl/

* To subscribe, please go to SHANON's website.
Subscribe