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Shooting Oneself in the Foot? Trade War and Global Value Chains

Cecilia Bellora () and Lionel Fontagné ()

Working Papers from CEPII research center

Abstract: Since the beginning of 2018, the US administration has announced and implemented several measures limiting US trade, in particular with China. This has fueled retaliation and has escalated in high trade tensions at the global level. We address in this paper the effects of the current trade tensions on trade, sectoral value added and welfare, in General Equilibrium under imperfect competition. We rely on a set-up differentiating demand of goods according to their use, for final or intermediate consumption. This authorizes tracing the impact of protection, along the value chains, on prices, value added and factor income. Additional tariffs from official lists are averaged at the 6 digit level of the Harmonized System (HS6), before being aggregated at the sector level with a reference group weighted method. Negotiated quantities in Voluntary Export Restraints are also taken into account at the product level. Beyond the direct toll of sanctions, US exports to the world post a 7.5% decrease as a result of reduced competitiveness led by vertical linkages along the value chains. Because of the measures in place as of August 2019, three quarters of the sectors decrease their value added in the US, suggesting that with this tariff war the US are shooting themselves in the foot. The quantification of job destructions and creations in the different sectors is consistent with effects channeling through prices and demand along the value chains detrimental to downstream industries.

Keywords: Trade War; Global Value Chains (search for similar items in EconPapers)
JEL-codes: F13 F17 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-int
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Related works:
Working Paper: Shooting Oneself in the Foot? Trade War and Global Value Chains (2020) Downloads
Working Paper: Shooting Oneself in the Foot? Trade War and Global Value Chains (2020) Downloads
Working Paper: Shooting oneself in the foot? US trade policy coping with Global Value Chains (2019)
Working Paper: Shooting oneself in the foot? US trade policy coping with Global Value Chains (2019)
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