Lessons from US-China Trade Relations

Abstract

We review theoretical and empirical work on the economic effects of the United States and China trade relations during the past 20 years. We first discuss the origins of the China shock and its measurement and present methods used to study its economic effects on different outcomes. We then focus on the recent US-China trade war. We review methods used to evaluate its effects, describe its economic effects, and analyze whether this increase in trade protectionism reverted the effects of the China shock. The main lessons learned in this review are that (a) the aggregate gains from US-China trade created winners and losers; (b) China's trade expansion seems not to be the main cause of the decline in US manufacturing employment during the same period; and (c) the recent trade war generated welfare losses, had small employment effects, and was ineffective in reversing the distributional effects due to the China shock.