The Welfare Impact of Intermediate Goods Tariffs in the US-China Trade War

Abstract

This paper examines the welfare impact of intermediate goods tariffs imposed during the U.S.-China trade war (2018-2020) on consumers, producers, and employment in both economies. Combining qualitative and quantitative analysis, we utilize government reports, corporate case studies (e.g., Apple, BYD, Whirlpool), and industry data (washing machine prices, soybean exports, employment trends) to trace tariff transmission through global value chains (GVCs). U.S. consumers bore 108–225% tariff pass-through costs, with washing machine prices rising 12% (86/unit),reducingrealincomesby1.4B monthly. U.S. producers saw short-term gains in protected sectors (e.g., steel output ↑1.9%), but net losses prevailed due to input cost surges (3.5Bdownstreamdamage)and inefficientreshoring(820K per job created). Chinese SMEs suffered profit margin declines (0.35% per 1% tariff rise), triggering 10–20% workforce reductions and supply chain relocations to Southeast Asia, exacerbating hidden unemployment. Tariffs targeting intermediate goods—deeply embedded in GVCs—impose multi-stakeholder welfare losses. Policymakers should prioritize supply chain diversification and critical intermediate goods tariff exemptions over decoupling. By focusing on intermediate goods as the core transmission channel, this study pioneers a systematic analysis of their multi-dimensional welfare impacts across economies, revealing the trade war’s true costs beyond gross trade statistics.