DP13695 The 2018 US-China Trade Conflict After 40 Years of Special Protection

Author(s): Chad P. Bown
Publication Date: April 2019
Keyword(s): retaliation, tariffs, Trade War, WTO
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13695

In 2018, the United States suddenly increased tariffs on nearly 50 percent of its imports from China. China immediately retaliated with tariffs on more than 70 percent of imports from the United States. This paper assesses what happened in 2018 and attempts to explain why. It first constructs a new measure of special tariff protection to put the sheer scope and coverage of the 2018 actions into historical context. It then uses the lens provided by the 2018 special tariffs to explain the key sources of economic and policy friction between the two countries. This includes whether China's state-owned enterprises and industrial subsidies, as well as China's development strategy and system of forcibly acquiring foreign technology, were imposing increasingly large costs on trading partners. Finally, it also examines whether the US strategy to provoke a crisis-which may result in a severely weakened World Trade Organization-was deliberate and out of frustration with the institution itself.