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Collateral Damages of the Trade War

Cho_Sungjoon thumbBy Sungjoon Cho [originally posted on the International Economic Law and Policy Blog on August 12, 2019]

Two researchers from the Kiel Center for Globalization (Haiou Mao and Holger Görg) have just published a working paper (PDF) entitled “Friends like This: The Impact of the US – China Trade War on Global Value Chains.”  Based on the notion of “cumulative and indirect tariffs” in global value chains (GVCs), the paper demonstrates that higher tariffs on Chinese intermediate products (parts and components) imposed by the United States incur an additional tariff cost to third countries (such as the EU, Canada and Mexico) when they are assembled into final products and re-exported to those third countries.  Any initial tariffs imposed by the United States will continue to hurt multiple trading partners further downstream in GVCs.

This study highlights collateral damages of the U.S. – China trade war.  One might speculate that it calls for a strong “normative” response from the world trade community.  Could, or should, third parties challenge those tariffs imposed by the United States, and retaliatory tariffs imposed by China, before the WTO?

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