In 2018, the Trump administration levied tariffs on approximately $370 billion of Chinese exports (nearly 2/3 of all Chinese exports). I examined US product-level import data from 35 of its biggest trading partners over the period from January 2016 to January 2024. I found that following the US Section 301 Tariffs, US imports of tariff-targeted goods increased over the same period. Further regressions revealed that in the following July 2018, imports of tariff-targeted goods from China to the United States declined, while imports of tariff-targeted goods from the rest of the world increased, providing clear evidence of trade diversion as a result of the tariffs. Previous literature has shown that economies well-equipped to produce low-tech and medium-tech goods were particularly well positioned to supplement trade losses from China. Additionally, according to the gravity model, countries with geographic proximity and a sufficiently high GDP are more likely to trade. By this reasoning, Latin America was particularly well-positioned to absorb this diversion. Further regressions found that Latin American economies experienced a larger increase in imports of tariff-targeted products than the rest of the world.
Acknowledgements: Professor Alicia Dang