Dissecting the Impact of the 2018-2019 Trade War on U.S. Exports

Abstract

During the 2018-2019 trade war, U.S. exports have been affected by foreign retaliatory tariffs, U.S. import tariffs that act through input-output linkages, and policy uncertainty. We establish, first, that the large negative impact of foreign tariffs on U.S. exports is highly heterogeneous across destinations and industries, being much larger among exports to China, particularly of industrial supplies, and is explained by the degree of product differentiation and the extent to which trade occurs within related parties. Second, supply chains matter, as U.S. import tariffs lead to lower exports by industries using targeted imports as inputs. Third, beyond the direct impact of tariffs, uncertainty appears to play an important role, as suggested by a collapse in exports of durable goods relative to nondurables, and in sectors facing a larger risk of tariff increases. The severity of the trade war's impact on U.S. exports is amplified by a limited ability to redirect exports across markets: increased exports to the rest of the world only partially offset the decline in sales to China. Finally, we establish that the impact of tariffs on U.S. export volumes and prices is essentially different than that of exchange rates.