Understanding the heterogeneous roles of China's sectors under the shock of second Trump administration's new tariffs: A novel method of shock-based input-output data envelopment analysis

Abstract

Existing studies on input-output analysis quantify losses resulting from new tariffs, but provide limited insight into identifying vulnerable sectors and regions. This study first integrates loss analysis with efficiency analysis, and is capable of assessing vulnerability. Methodologically, this study proposes a novel shock-based input-output DEA model and an extended input-output model. Furthermore, four coefficients are adopted to capture sectoral interconnections and loss propagation. Empirically, this study considers new tariffs possibly adopted by the second Trump administration on China. Our main conclusions are summarized below. Firstly, China's overall indirect losses significantly outweigh direct losses, with indirect losses being 3.6 times direct ones. Secondly, loss distribution displays pronounced heterogeneity across sectors and provinces. Electronic and Telecommunications Equipment sector experiences large direct (27.11 % of China's total) and indirect losses (18.90 % of total). Four eastern provinces (Guangdong, Jiangsu, Zhejiang and Shanghai) experience large indirect losses (69.05 % of total). Thirdly, energy industry belongs to a typical relatively supportive industry, with limited direct losses but large indirect losses. Finally, inefficiency sources vary much across industries and provinces. Particularly, Shanxi, Shandong, and Inner Mongolia exhibit significant potential for improving efficiency in energy industry. Consequently, policymakers should develop well-suited strategies to efficiently allocate limited resources, prioritizing recovery of vulnerable sectors and provinces.