The Global Value Chain and Welfare Effects of Tariffs—Counterfactual Analysis of Sino–US Economic and Trade Frictions

Abstract

This paper aims to study the impact of Sino–US (China–United States) trade frictions on global value chains and welfare changes. We introduce the general equilibrium model for multi-country and multi-sector heterogeneous enterprises and combine it with an input–output structure. The results show that the additional tariffs on China and the US reduce bilateral trade and affect the overall imports and exports of both countries to varying degrees. The results show that the additional tariffs on China and the US affect both countries’ overall imports and exports to varying degrees. The impact of the trade of manufactured goods is greater than that of the trade of intermediate goods. The welfare effect in China has dropped by 0.163%, while the corresponding effect in the US has improved by 0.016%. The main reason for the decline in China’s welfare is the deterioration of the terms of trade. Increased tariffs between China and the US can reduce bilateral trade between the two countries, particularly in intermediate goods, and can cause a reorganization of global value chains in both regions.