The substitution effect of U.S.-China trade war on taiwanese trade

Using monthly trade data from January 2018 to December 2019, we empirically examine the effects of the U.S.-China trade war on Taiwan’s exports as well as imports. On the export side, the tariff hike in the U.S. against imports from China may induce Taiwan to export to the U.S., that is, the substit ution effect. To investigate this hypothesis, we examine how U.S. tariffs on goods from China affect Taiwan ’s exports to the U.S. More directly, we also explore how China’s exports to the U.S. change Taiwan ese exports to the U.S. On the import side, Taiwan may increase imports of the intermediate inputs necessa ry to produce goods for the U.S. market, from China. Our empirical analyses confirmed the validity of these hypotheses. By contrast, we did not find a substitution effect in exports from Japan and South Korea.