Evaluating the cumulative impact of the US–China trade war along global value chains

Abstract The US–China trade war has been a key aspect of empirical review in recent times. Using the OECD Inter‐Country Input–Output Model, this study proposes an improved incomplete tariff pass‐through measurement method of cumulative tariff costs incurred across GVCs. Such an approach provides a more accurate picture of the impact of the US–China trade war on not only themselves but also third‐party countries. Our study found that five rounds of tit‐for‐tat tariff escalation has resulted in an indirect tariff burden of around 23 billion US dollars (USD) in total, of which 67% was caused by the US’s tariffs on Chinese imports. Moreover, perhaps unsurprisingly, the United States and China have suffered most economically, and in addition to direct tariff costs, they have to bear the indirect tariff burden of approximately 10 and 6.5 billion USD, respectively. This was followed by the EU, Canada and Mexico, which incurred indirect tariff costs of around 700 million to 1.7 billion USD. In addition, the burden on third‐party countries is expected to rise by 30%–70%, if we consider the hypothesis of complete tariff pass‐through.