The Impact of Sino-US Trade Friction on Trade Deflection Effect in Developing Countries

Abstract

In recent years, as the Sino-US trade war has intensified, the economic and trade relationship between the two countries has undergone significant changes. Given this, this paper examines the impact of trade frictions on developing countries' trade flows from the perspectives of tariff barriers and trade policy uncertainty. First, it examines whether developing countries' exports to the United States change after the onset of trade frictions (i.e., the US import substitution effect). Second, it examines whether developing countries' exports to China change after the onset of trade frictions (i.e., the Chinese export deflection effect). An empirical analysis based on bilateral trade data from 2013 to 2023 shows that trade frictions significantly increase developing countries' exports to the United States, demonstrating a clear import substitution effect. However, imports from China do not increase significantly, indicating a nonsignificant Chinese export deflection effect. Finally, the study proposes policy recommendations for developing countries to address the changing international trade environment, such as promoting the diversification of export markets and products and enhancing supply chain autonomy.