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Trade Wars and Supply Chain Shifts: How Do Tariffs Reshape Global Trade Flows?

Alzola Lundberg, Paulina LU and Andersson, Martin (2025) NEKH01 20242
Department of Economics
Abstract
The U.S.-China trade war, which began in 2018, remains a critical issue in global trade, with
Trump’s return to office in January 2025 heightening tensions as he threatens to impose further tariffs on, and beyond, China. This thesis investigates both the direct effects of U.S. tariffs on trade between the U.S. and China and the indirect effects on Vietnam. The primary focus is to examine Vietnam's trade response to the U.S.-China trade war in order to highlight the dynamics of trade diversion and trade deflection in the garment, textile, and footwear (GTF) industry. By examining multiple potential channels, this study explores how Chinese trade might be redirected through Vietnam. Using a PPML model, the analysis measures shifts in trade... (More)
The U.S.-China trade war, which began in 2018, remains a critical issue in global trade, with
Trump’s return to office in January 2025 heightening tensions as he threatens to impose further tariffs on, and beyond, China. This thesis investigates both the direct effects of U.S. tariffs on trade between the U.S. and China and the indirect effects on Vietnam. The primary focus is to examine Vietnam's trade response to the U.S.-China trade war in order to highlight the dynamics of trade diversion and trade deflection in the garment, textile, and footwear (GTF) industry. By examining multiple potential channels, this study explores how Chinese trade might be redirected through Vietnam. Using a PPML model, the analysis measures shifts in trade flows following the imposition of tariffs. The findings reveal reduced U.S. imports from China at two tariff levels and evidence of Vietnam gaining from trade diversion to the U.S. Descriptive data on FDI inflow to Vietnam provide insights of FDI contributing both to Vietnam as a viable option for trade deflection, and increasing its export market shares. Additionally, an OLS regression on production volumes identifies an interesting paradox: while overall production in Vietnam’s footwear and clothing sectors decreased, Vietnamese imports from China, and exports to the U.S., of the same products increased. This pattern could signal the occurrence of Chinese trade deflection. The combination of these results provides a contribution to the literature on the multifaceted effects of protectionist trade policies on the global market. However, the findings are subject to certain limitations, including a lack of granular data on FDI, specific ownership structures in Vietnam and the omission of inflation, to exclude potential explanations other than trade deflection or trade diversion. (Less)
Please use this url to cite or link to this publication:
author
Alzola Lundberg, Paulina LU and Andersson, Martin
supervisor
organization
course
NEKH01 20242
year
type
M2 - Bachelor Degree
subject
keywords
Trade diversion, Trade deflection, Tariffs, Vietnam, China
language
English
id
9181913
date added to LUP
2025-05-08 09:15:27
date last changed
2025-05-08 09:15:27
@misc{9181913,
  abstract     = {{The U.S.-China trade war, which began in 2018, remains a critical issue in global trade, with
Trump’s return to office in January 2025 heightening tensions as he threatens to impose further tariffs on, and beyond, China. This thesis investigates both the direct effects of U.S. tariffs on trade between the U.S. and China and the indirect effects on Vietnam. The primary focus is to examine Vietnam's trade response to the U.S.-China trade war in order to highlight the dynamics of trade diversion and trade deflection in the garment, textile, and footwear (GTF) industry. By examining multiple potential channels, this study explores how Chinese trade might be redirected through Vietnam. Using a PPML model, the analysis measures shifts in trade flows following the imposition of tariffs. The findings reveal reduced U.S. imports from China at two tariff levels and evidence of Vietnam gaining from trade diversion to the U.S. Descriptive data on FDI inflow to Vietnam provide insights of FDI contributing both to Vietnam as a viable option for trade deflection, and increasing its export market shares. Additionally, an OLS regression on production volumes identifies an interesting paradox: while overall production in Vietnam’s footwear and clothing sectors decreased, Vietnamese imports from China, and exports to the U.S., of the same products increased. This pattern could signal the occurrence of Chinese trade deflection. The combination of these results provides a contribution to the literature on the multifaceted effects of protectionist trade policies on the global market. However, the findings are subject to certain limitations, including a lack of granular data on FDI, specific ownership structures in Vietnam and the omission of inflation, to exclude potential explanations other than trade deflection or trade diversion.}},
  author       = {{Alzola Lundberg, Paulina and Andersson, Martin}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Trade Wars and Supply Chain Shifts: How Do Tariffs Reshape Global Trade Flows?}},
  year         = {{2025}},
}