Working Paper: CEPR ID: DP13695
Authors: Chad P. Bown
Abstract: In 2018, the United States suddenly increased tariffs on nearly 50 percent of its imports from China. China immediately retaliated with tariffs on more than 70 percent of imports from the United States. This paper assesses what happened in 2018 and attempts to explain why. It first constructs a new measure of special tariff protection to put the sheer scope and coverage of the 2018 actions into historical context. It then uses the lens provided by the 2018 special tariffs to explain the key sources of economic and policy friction between the two countries. This includes whether China’s state-owned enterprises and industrial subsidies, as well as China’s development strategy and system of forcibly acquiring foreign technology, were imposing increasingly large costs on trading partners. Finally, it also examines whether the US strategy to provoke a crisis—which may result in a severely weakened World Trade Organization—was deliberate and out of frustration with the institution itself.
Keywords: trade war; tariffs; retaliation; WTO
JEL Codes: F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U.S. tariffs on nearly 50% of imports from China (F69) | U.S. tariffs raised the average U.S. tariff on imports from China from 3% to over 12% (F69) |
| U.S. tariffs on nearly 50% of imports from China (F69) | U.S. perception of China's economic model as increasingly costly to trading partners (F69) |
| U.S. tariffs on nearly 50% of imports from China (F69) | escalation of tensions and push towards a crisis in the multilateral trading system (F13) |
| U.S. tariffs on nearly 50% of imports from China (F69) | China's retaliatory tariffs on 70% of U.S. imports (F69) |
| China's retaliatory tariffs on 70% of U.S. imports (F69) | escalation of tensions and push towards a crisis in the multilateral trading system (F13) |
| U.S. tariffs on nearly 50% of imports from China (F69) | provoke a crisis in the World Trade Organization (F13) |