ABSTRACT
Chapter 5 evaluates the impact of Sino–U.S. trade frictions considering the tariff structure in China and the U.S. based on the Quantitative Analysis method. The chapter first introduces two relevant stylized facts and builds a heterogeneous firm trade model, and then theoretically discusses the differential impact on welfare of the tariff reduction of the intermediate and final goods. It is found that a country would benefit from the tariff reduction in final goods, while lose from the tariff reduction in intermediate products. Quantitative analysis in this chapter further supports the propositions of the theoretical model that Sino–U.S. trade friction in 2018 would worsen the two countries’ overall welfare level, while that of China would deteriorate more.
The first two chapters of this part analyze this Sino–U.S. trade friction through various aspects, including the development of the trade friction, the potential impact on Chinese and American enterprises and possible coping measures, as well as the relationship between tariffs and terms of trade and welfare levels under the standard trade theory. This chapter will specifically use a quantitative analysis method to quantitatively assess the impact of this Sino–U.S. trade friction on the welfare levels of the two countries. In this regard, this chapter will analyze the changes in welfare levels of the two countries in the following two scenarios: (1) the unilateral case, where the U.S. unilaterally imposes tariffs on its imports from China without China implementing corresponding counterattacks; and (2) an escalation of the trade friction, with each country imposing a 25% tariff on imports from the other.
