The Potential Effects of TPP, TTIP and Trump's Tariffs on China's Competitiveness in the US Market

Abstract

This paper analyzes the potential effects of the Trans-Pacific Partnership (TPP), the Trans-Atlantic Trade, Investment Partnership (TTIP) and also tariff-related measures implemented by Trump administration against China’s export. It examines the sectors in which China will be affected most in terms of its competitiveness in the US market against the countries included in these agreements. It also investigates whether China has significant price advantages in certain sectors and whether these agreements and tariff measures have the potential to erode those advantages. The ‘quantity’ and ‘value’ of US imports from the countries included in these agreements are used for calculating ‘quantity similarity indexes’ and ‘price similarity indexes’ in order to compare China to its competitors. Taking into account ‘product heterogeneity’, this paper reveals how Chinese exports will be affected by the elimination of tariff barriers within the context of these agreements and also by the increases in tariffs on Chinese products. The paper also presents policy implications for China to create its own trade and competition measures against these possible trade actions, along with the potential effects of Chinese competition on other countries in the US market. The results indicate that China is likely to be seriously and negatively affected from these prospective agreements and tariff measures. It is also likely that China will lose its price competitiveness against its main competitors in the US market, especially in such sectors as plastics, medical appliances and optical instruments. Last but not the least, the products whose tariffs are increased by the Trump administration are selected in a rational way from the viewpoint of the US, as those products are generally the ones  in which TPP and TTIP are relatively ineffective.