The Impact of the U.S.-China Trade War on Exports from U.S. Allies Korea and Japan

Purpose - The purpose of this paper is to examine the impact of U.S. tariffs on Chinese exports, focusing on how they affect Korea and Japan’s exports to the U.S. Given that Korea and Japan are key U.S. allies and the U.S. is a major market for all three countries, the study analyzes the trade diversion effects resulting from these tariffs. Design/Methodology/Approach - Based on monthly trade data from 2016 to 2022, the study applies the Difference-in-Differences (DID) method to assess changes in exports following the imposition of U.S. tariffs on Chinese goods. Findings - This paper studies the decline in China’s exports to the U.S. across all technological levels, with reductions observed in seven out of ten commodity sectors. In contrast, Korea and Japan experienced an increase in exports to the U.S., particularly in the low- and mid-low technology sectors. The third round of tariffs, imposed in September 2018, had the most significant impact, causing a substantial drop in Chinese exports while benefiting Korean and Japanese exporters. These findings indicate a trade diversion effect, where price-sensitive products previously supplied by China were substituted with Korean and Japanese goods. Research Implications - In the management of this paper, this study has significance in indicating that U.S. tariffs on Chinese exports created economic opportunities for Korea and Japan, increasing export volumes to the U.S. As both countries expand their market shares, particularly in low- and mid-low technology sectors, economic ties with the U.S. are expected to strengthen. The growing trade flows between Korea, Japan, and the U.S. highlight a deepening of economic cooperation and reinforce their roles as key trade partners.