Mediation Analysis of the China-US Trade War Effects

Zongwu Cai and Jinyan Li
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Zongwu Cai: Department of Economics, The University of Kansas, Lawrence, KS 66045, USA
Jinyan Li: Department of Economics, The University of Kansas, Lawrence, KS 66045, USA

No 202512, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: This paper examines the indirect effects of the ongoing China-US trade war on trade balances, employing a modified mediation analysis that includes lagged mediators to enhance the accuracy of traditional models. By integrating these lagged variables, our approach can capture the temporal dynamics. Through a comprehensive econometric analysis on indirect effects bypassing some mediators, we disentangle the direct and indirect effects of trade policies, highlighting the distinct impacts across major regions involved in trade between the two nations. Our findings suggest that the trade war has produced asymmetric effects on the trade balances of China and the US, with notable regional variation. For China, positive indirect effects are observed across all mediators, where rerouted supply chains helped maintain export flows under tariff pressures. In contrast, the US benefits more directly from the trade war, with strong direct effects and minor indirect effects across multiple regions. The inclusion of lagged mediators reveals the gradual adjustment of trade patterns over time, offering a more comprehensive perspective on how the trade war has reshaped global trade dynamics.

Keywords: International trade; Trade friction; Mediation analysis; Indirect effects; Lagged mediators. (search for similar items in EconPapers)
JEL-codes: C10 C54 F13 F51 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-cna
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