US–China Tariffs, Trade Diversion, and Vietnam’s Export Diversification

The 2018 US–China trade war generated a sharp, sector-specific shock that reallocated US sourcing away from China and toward third-country suppliers. Most studies document aggregate diversion, leaving open whether third-country export growth reflects broader product scope (the extensive margin) or deeper scaling within existing products (the intensive margin). US tariffs were imposed on Chinese goods as part of the US–China trade war and are plausibly exogenous to Vietnam’s sector-specific export shocks. The empirical design exploits within-industry changes over time in the HS4-level tariff exposure measure defined in equation (3), while quarter fixed effects absorb shocks common across industries and HS4 fixed effects absorb time-invariant sector characteristics. The fixed-share construction helps limit endogeneity arising from post-shock within-industry product reallocation. Tariff exposure is associated with higher Vietnamese exports, with adjustment concentrated on the extensive margin: the estimated coefficients are 0.215*** for the extensive margin and 0.127** for the intensive margin. Intensive-margin scaling is more pronounced in high-RCA industries, while the corresponding estimate is small and statistically insignificant in low-RCA sectors. Mechanism evidence indicates stronger responses in industries more reliant on Chinese intermediates, consistent with vertical specialization in global value chains but also raising concerns about limited domestic value added and potential anti-circumvention scrutiny. Overall, Vietnam’s trade-war gains appear to operate primarily through product-line expansion rather than through proportional scaling within existing lines. The increase in active HS8 lines should be interpreted cautiously, as it may reflect supply-chain reorganization, product reclassification, or assembly rerouting in addition to broader HS8 coverage.