Flooded by China? Trade diversion due to US tariffs during Trump’s first mandate

Irina Balteanu, Maximiliano Moreno and Francesca Viani
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Irina Balteanu: Banco de España
Maximiliano Moreno: Banco de España and Paris School of Economics
Francesca Viani: Banco de España

No 2634, Working Papers from Banco de España

Abstract: This paper investigates whether US tariffs on China diverted Chinese exports towards the EU, exploiting the first US-China trade war as a setting that permits clean identification of trade diversion effects. Applying difference-in-differences local projections to highly disaggregated tariff, import and unit value data, it shows that trade diversion occurred but was limited in size. For each dollar reduction in US imports from China, 9 cents were redirected to the EU market in real terms. The effects varied substantially across products and destination markets. Trade diversion was strongest for complex capital goods and homogeneous intermediate inputs, and was more pronounced in EU markets with greater import exposure to China and weaker competition from alternative suppliers. Products experiencing effective diversion also exhibited significant price declines, with competitive pressures concentrated in lower-price market segments. These findings suggest that tariffs of a magnitude comparable to those imposed by the United States in 2025 could redirect Chinese exports towards the EU, potentially contributing to a second “China shock” in Europe. While the aggregate effects are modest, diversion and price pressures may be considerably stronger in specific product categories and destination markets.

Keywords: trade diversion; tariffs; trade war; EU imports; import prices; China shock (search for similar items in EconPapers)
JEL-codes: E31 F14 F6 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2026-10
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2634e

DOI: 10.53479/44545

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