Which goods are most vulnerable to American tariffs on China?

WITH HIS additional 10% tariff on all Chinese goods, President Donald Trump has reignited the trade war between the world’s two largest economies. The impact on trade will be far-reaching, but not uniform. Our charts below show which goods are likely to be the most affected by Mr Trump’s opening salvo.

Could American consumers and Chinese firms avoid the tariffs by finding different trading partners? Our first chart shows Chinese exports and American imports as a share of global trade.  Where both shares are low, alternative markets and suppliers should be easy to find. Take cotton cardigans, for example. China accounts for just 21% of the world’s exports of these items, and America accounts for just 24% of world imports. China and America may therefore find it easy to switch to selling or buying cosy knits elsewhere (though prices or quality could be worse).

For other products, flows between America and China dominate global trades.  Christmas and other party decorations are one such case: America’s imports account for about half of global trade in these merry items, and China’s exports for about four-fifths.

The world economy is not static, though, and production will move in response to tariffs. But increasing output is harder for some goods than for others. China may dominate the supply of Christmas ornaments, but these trinkets are easy to make. For which goods is moving production trickier? To answer this question, we acquired data from the Atlas of Economic Complexity, which scores products based on how hard they are to produce: the more difficult the process, the higher the score. For instance, producing tin ore or cotton is relatively straightforward, while making lasers, advanced chemicals or microscopes is more complex.

The second chart shows that among the top imports from China to America, most goods are of above average complexity.  Laptops and smartphones stand out. These are both relatively hard to make and shipped in huge quantities from China to America.

In our third chart, we zoom in on the products that are both hard to make and heavily traded between America and China. These goods are all in the top 50% for complexity of production. The combined share of American imports and Chinese exports is also high. For these products, shifts in trade patterns and adjustments to production are both relatively difficult—there may be little choice but for the two countries to continue to trade, at least at first. That will keep America’s customs officers busy.

There is a reason that America imports over $400bn-worth of goods from China every year: China produces a lot of the stuff that Americans want, at low prices. Taxing that trade means that there will be less of it—and even when those flows are replaceable, prices are likely to rise. In 2018, after Mr Trump imposed a minimum 20% tariff on washing machines, the vast majority of which were imported from China, prices in America went up by 12%. For many items, further price increases are probably unavoidable. ■