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ABSTRACT In response to the heightened tariffs imposed by the US on Chinese exports since 2018, China correspondingly imposed retaliatory tariffs on imports from the US. Using monthly disaggregated Chinese customs data for the period from January 2017 to December 2019, this paper analyzes how Chinese exporters respond to China's retaliatory tariff exposure in the US‐China Trade War. The empirical evidence uncovers a vertical spillover effect, where the import‐side shock of China's retaliatory tariffs transmits to the exports along the production chain, resulting in a concurrent decline in both the values and prices of Chinese exports to third markets. Mechanism analysis highlights the prominence of the export quality‐downgrading effect as a pivotal determinant in the passing down, outweighing the influence of the competition effect. Furthermore, the impacts of retaliatory tariffs exposure are heterogeneous across export margins, trade modes, product categories, and destination markets.
Song et al. (Tue,) studied this question.