When the Trump administration began levying tariffs on goods exported from China from early 2018, its stated goal was to protect U.S. manufacturers and punish China for its unfair trade practices in technology transfer, intellectual property and innovation.
But as tariffs escalated into 2019, affecting 93 percent of products exported from China to the US, researchers found that the only ones being punished were US consumers. To offset the new cost of the tariffs, companies raised their prices for domestic goods, decreasing the real income of US households. By the end of 2020, the New York Times stated, “US consumers, not China, are paying for Trump’s tariffs.”
New research from Davin Chor, an associate professor at Tuck and chair of globalization at Dartmouth, shows those earlier conclusions may have been premature. Chor and co-author Bingjing Li of the University of Hong Kong, in a working paper titled “Illluminating the Effects of the US-China Tariff War on China’s Economy,” argue that China has indeed paid an economic price during the trade war. They estimate that the second half of the Chinese population most exposed to U.S. tariffs saw a 2.52 percent decline in per capita income and a 1.62 percent decline in manufacturing employment. got to see.
If the demand for labor falls, you might expect the nighttime lighting emitted by those workers’ quarters to go out as well.
It has taken some time for this part of the trade war story to emerge, as it is very difficult to obtain reliable and up-to-date data on the Chinese economy at the sub-national level. Chor and Li have largely circumvented this problem by measuring a common measure of economic activity: the nighttime light intensity, as shown in high-resolution satellite images. “These data have been collected passively since the 1990s,” Chor says, “and development and growth economists recognize that there is a strong correlation between local economic outcomes and the intensity of nighttime lighting in the area.” In the context of China, more light is emitted when factories are busy and working night shifts, and when the workers in those factories, who often live in nearby dormitories, are more numerous. Conversely, “if the demand for labor drops,” Chor explains, “you would expect the nighttime lighting emitted by those workers’ quarters to go out as well.”
Davin Chor, an associate professor in Tuck’s economics group and a chair in Dartmouth’s academic cluster on globalization, teaches Global Economics for Managers.
Chor and Li analyzed night-light data as it covered both US-based tariffs on Chinese exports, as well as China’s retaliatory tariffs on intermediate inputs exported from the US to China. To do this, they studied night light activity in 100,000 networks across China. , each covering an area of 11 square kilometers. Within those networks, they geolocated 280,000 companies and created a measure of the network’s exposure to tariffs based on the original product composition of the exports and imports. In their main analysis, they examined the impact of the tariff shocks in 2018 and 2019 on night light intensity over roughly the same period. They found that every one percentage point increase in exposure to U.S. rates decreased nighttime light intensity by 0.59 percentage points. “In contrast,” they write, “we find no statistically significant effects for the retaliation rates on inputs.” They speculate that China was strategic in choosing retaliatory rates that would not harm its own citizens, such as tariffs on agricultural products they could get from elsewhere, and by lowering their most favored nation (MFN) tariffs.
The final step was to map nightlight changes to changes in industry GDP and employment, based on a historical relationship between those variables. Here they found that the impact of US tariffs was significant, but also very skewed. Seventy percent of the Chinese population had a negligible amount of exposure to the tariffs, but the 2.5 percent of the population most exposed saw a major impact on their income (2.52% drop) and employment (1.62 % drop).
While the trade war started with the Trump administration, it seems unlikely that it will end under President Biden. That means consumers are likely to continue to pay higher prices for goods imported from China, and Chinese citizens in the most exposed industrial zones will continue to suffer from the overhang of these tariffs, even as the Chinese economy tries to recover from the COVID-19 pandemic. -19 pandemic.
Chor said the impact of the trade war on companies in the coming years could come into focus as they evaluate their options. “This is reaching a point where companies are going to rethink their global strategy,” he says, “in terms of where you want to locate your manufacturing facilities and how exposed you want to be to China’s supply chain links. Those are questions that I think managers are asking too. dealing with complex global operations, now look very closely.”