Just passing through? The US-China trade war and reconfiguration of global value chains through Vietnam

Tao Zou and Yundan Gong

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study how third-country supply chains reconfigure under the 2018-2019 US tariff escalation on Chinese goods, using comprehensive transaction-level trade and domestic business-to-business records for firms in Vietnam. Exploiting exogenous variation in firm-level tariff exposure constructed from pre-treatment export portfolios, we find that both value-added processing and transshipment contribute to triangular trade through Vietnam, but activate on distinct timelines: transshipment responds immediately while processing activates mainly after the May 2019 escalation signals tariff permanence. Supply chain network adjustment precedes trade value expansion, with upstream Chinese supplier diversification beginning first, local intermediate sourcing activating later, and downstream US buyer adjusting last. Opening the third-country supply chain interior, we show that over half of the tariff-induced local sourcing expansion channels Chinese intermediate content, and that local sourcing from China-embedded local suppliers responds at 3.2 times the magnitude of independent local suppliers. These results indicate that global value chains relocation to Vietnam activated processing capacity but extended rather than displaced Chinese supply chain influence in the third country.

Keywords: trade war; supply chain reconfiguration; local sourcing; Vietnam (search for similar items in EconPapers)
JEL-codes: F13 F14 F23 L14 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2026-06
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