Impacts of trade diversion from China in the United States market on wages in a third country: Evidence from Thailand

Abstract

Since the latter half of the 2010s, China's exports to the United States (US) have gradually decreased due to the US-China trade war and other factors, such as lockdown measures in China to combat COVID-19. This decrease has resulted in increasing exports from third countries, including Thailand, to the US market by substituting China's exports, i.e., trade diversion. Against this backdrop, this study empirically investigates how the changes in exports to the US driven by the change in China's exports to the US affect wages in Thailand. Especially, we examine the heterogeneous effects according to workers' characteristics. To this end, we conduct regression analyses using individual-level quarterly data from the first quarter of 2017 to the second quarter of 2023. Our main finding is that the wage gap between low- and middle-skill occupations decreased, while the gap between middle- and high-skill occupations increased. Namely, the increased exports to the US caused “wage polarization” in Thailand. We also find that the increase in exports to the US contributed to expanding the wage gap by age but narrowing it by gender.