A Study Of Sino-US Trade Friction And Its Welfare Effects

In the past decades,China has witnessed a rapid development in both economy and trade.In the meanwhile,Sino-US trade frictions have much increased in scale and frequency,which has long attracted the attention of researchers.The trade tensions between this two countries escalated in April 2018,when the United States detailed a list of Chinese goods equivalent to an amount of 50 billion dollars,and China immediately retaliated by imposing an additional 25%tariffs on many goods of equal value imported from the United States.Unfortunately,neither of the countries were willing to make a concession,and such two economies have gone to the third round of trade war,by the end of October 2019.As two of the largest economies in the world,the relationship between China and the U.S.will have huge impacts on not only their own economies but also the global development.How much would the global welfare be affected by such Sino-US trade friction?What elements should we take into consideration to construct a general equilibrium framework to quantitatively evaluate the impact of such friction?In this paper,we attempt to answer such two questions using the methodology of structural quantitative model in international trade.The Sino-US trade relationship has played a vital role in the prosperity and the stability of world economy.Therefore,the study of this dissertation has on one hand filled the gap of current research to some extent,and implied great policy significance on the other hand.This dissertation is made up of eight chapters.Chapter 1 states the background,research purposes and the significance of our topic.Chapter 2 briefly reviews the relevant literature about the Sino-US trade friction,and the quantitative analysis based on the structural model.The 3^rd to the 6^th chapter are the core of this dissertation.To be specific,in Chapter 3,I first review the Sino-US trade friction from a historical standpoint,which is especially focused on the evolution of the China-Trump trade war in 2018.And I find that,tariff revenue,trade imbalance,and intermediate trade are three of the key elements of this Sino-US trade friction.In Chapter 4,I first resort to the classic standard trade model and theoretically show the relationship between the changes of tariff,terms of trade effect(TTE)and the welfare effect in the Armington Model.Then I modify the framework of Eaton and Kortum(2002)and Melitz(2003),by introducing a non-tradable good sector,tradable intermediate goods,trade imbalance and the tariff revenue effect in Chapter 5.Particularly,I have further discussed the potential mechanism and quantified the welfare impact of this Trump-China trade friction based on the modified framework.In Chapter 6,I further relax the assumption of constant markup,and explore the differential impact of tariff changes in intermediate goods and final products under the setting of Melitz and Ottaviano(2008),given the significant impact of intermediate trade in this trade disagreement.To further complete the analysis of the China-US trade war,I also summarize the potential reasons for the breakout of this trade friction,on the view of political and economic studies,in Chapter 7.And the last Chapter 8 summarizes this dissertation,and discusses the policy implications as well as the future research directions.With respect to the theoretical and quantitative results,the major findings and conclusions of this paper could be summarized as follows.First,the theoretical propositions show that,the argument of welfare implications in the standard trade theory that large countries will benefit from the tariff imposition with an improved effect of terms-of-trade,would no longer hold when the model is extended to a scenario considering the impact of tariff revenue.Second,besides the Terms-of-Trade Effect,the overall welfare impact could be additionally decomposed into the Tariff Mass Effect,the Firm Profit Effect and the Firm Mass effect,respectively,under the perfect competition,and in the scenario of monopolistic competition when the enterprises are restricted or allowed to free enter and exit to the market.Third,the impact of the trade friction on the overall welfare of China and the United States is also closely related to the degree of substitution elasticity of the industries on which import tariff is levied and trade imbalance between the two countries.At the same time,trade in intermediate goods also plays a vital role in this trade friction.Finally,the quantitative analysis shows that both China and the U.S.would lose from the trade friction,but the welfare of China would be more deteriorated.But overall,the welfare loss(gain)of each country would be no more than 1%in the worst-case scenario when China(U.S.)imposes tariff on all the products imported from the U.S.(China).In general,this paper provides further evidence for the positive impact of trade liberalization on the welfare gains from the perspective of quantitative analysis.This study adds to the growing body of studies that quantify the welfare impacts of Sino-US trade friction in a full-fledged modeling framework,and are attributable to the traditional welfare decompositions in the quantitative analysis.For example,in comparison to the traditional welfare decomposition adopted by Arkolakis,Costinot,and Rodriguez-Clare(2012),the approach of this paper is more economically intuitive in terms of identifying mechanisms,thus contributing to an existing body of literature with rapid developments in the trade-gain-estimation and welfare-change-quantification methods.Our quantitative results suggest that trade liberalization brings benefit,while trade protection deteriorates the overall welfare.All parties should actively communicate and solve bilateral and multilateral trade issues in a more collaborative manner.In the meanwhile,China should further promote the process of trade liberalization,especially the intermediate liberalization,to develop a higher-standard level of open economy.It's necessary for China to reduce the trade dependency on some individual countries,further optimize the trade structure,enhance the comprehensive competitiveness of Chinese exporters and improve their ability to confront the worldwide intensive pressure by the rising deglobolization,and then help to complement the strategy of building up national strength with international trade in the new era.