ABSTRACT Retaliatory trade policies, while serving as deterrents against the opposing party, may generate high economic costs for the implementing country. In response to the US Section 301 tariffs, China announced retaliatory tariffs on US imports and subsequently introduced two types of exclusions: statutory exclusions and market exclusions. While the former granted automatic tariff exemptions, the latter required that firms periodically apply for and secure government approval. We show that the excluded categories were of greater economic relevance to China. Statutory exclusions had a pronounced effect on facilitating the recovery of imports from the US, whereas market exclusions had only a minor effect. Regarding trade diversion, statutory exclusions had minimal effects, whereas market exclusions induced a shift in China's imports from the US to Southeast Asia and other regions.
Fang et al. (Mon,) studied this question.