Reshaping factory Asia: How did the US-China trade war affect the Asian-Pacific supply chain?
Abstract
This paper examines how the US-China trade war reshaped supply chains across the Asia-Pacific region. Using self-constructed product-level input-output linkages, we document three key findings. First, US tariff hikes significantly reduced Chinese exports to the US and, through upstream linkages, caused a 6.3% decline in China’s imports from Japan, South Korea, and Taiwan. Second, both China and the US reoriented parts of their supply chains toward ASEAN, Mexico, and India. China's exports to ASEAN rose by 6%, driven by both trade diversion and industrial relocation. Third, a quantitative Armington model shows that countries like ASEAN, Mexico, and India gained in welfare, while upstream suppliers such as Taiwan and South Korea incurred losses. If the trade conflict escalates into a global tariff war, global trade would contract by 5%, and all countries would experience welfare losses. These results underscore how bilateral trade tensions can trigger far-reaching supply chain shifts.