Policy Publications

Following the U.S.-China tariffs, Vietnam became one of the largest beneficiaries of shifting global supply chains. This note examines who actually drove Vietnam's export boom. Using detailed firm-level data, we show that Chinese-owned companies more than doubled their share of Vietnam's exports to the United States—from 11 percent in 2018–19 to 25 percent in 2020–23 (see figure). At the same time, the export shares of domestic Vietnamese firms and other foreign-owned firms declined. The findings suggest that part of Vietnam's export success reflects Chinese firms relocating production to Vietnam rather than a complete shift away from Chinese manufacturing, with important implications for understanding the effects of U.S. trade policy. 

This note investigates how the 2018–19 U.S. tariffs on Chinese imports reshaped Mexico’s role in U.S. supply chains. We estimate that 53 percent of Mexico’s export gains can be attributed to trade diversion caused by the tariffs, while the remaining growth reflects long-run trends and other factors (see figure). Within the trade-diversion component, Chinese production relocated to Mexico accounted for about 14 percent of total export growth, whereas direct transshipment accounted for less than 1 percent. These findings suggest that the tariffs primarily encouraged production to move to Mexico rather than widespread tariff circumvention through simple re-exporting, highlighting the growing integration of North American and Chinese supply chains. 

We compare China's renewed export surge with the export boom that followed its entry into the World Trade Organization in 2001, often referred to as "China Shock 1.0." We argue that today's "China Shock 2.0" differs in three important ways. First, export growth is concentrated in higher value-added, technology-intensive industries, increasing competitive pressures on advanced economies. Second, China's export expansion has occurred alongside a strategy of greater domestic self-reliance, resulting in a historically large and persistent trade surplus rather than a parallel increase in imports (see figure). Third, China is expanding from an already dominant position in the global economy, making additional export growth more consequential for the rest of the world. Together, these factors suggest that China Shock 2.0 has broader implications for global trade and production than the first China Shock.

Renewed attention to global imbalances has brought China's external surplus back into focus, with its trade surplus reaching a record $1.2 trillion in 2025. In particular, policymakers and analysts have increasingly focused on the role of industrial policies in shaping China's export performance and expanding trade surplus. Using detailed data on industrial policy interventions from the New Industrial Policy Observatory (NIPO) database, we document a positive relationship between the intensity of sector-specific industrial policy support and China's export growth and its trade balance (see figure), with especially strong gains in strategic industries such as automobiles and computing machinery. Taken together, the evidence suggests that industrial policy should be considered alongside traditional macroeconomic drivers when assessing China's external imbalances. 

Artificial intelligence (AI) has become a key driver of the global economic outlook, underscored by the unprecedented scale of announced investment commitments aimed at expanding AI-related infrastructure. The AI boom is also increasingly influencing international trade by boosting demand for critical inputs and intermediate goods needed to build data centers. This surge in AI-related investment has already supported international trade since early 2025, with strong demand for critical components particularly benefiting semiconductor producers and other high-tech manufacturing hubs in Asia. 

Using a quantitative multi-country, multi-sector trade model, the note analyzes the trade-offs between economic growth, tariff revenues, and reductions in the U.S. trade deficit under alternative tariff scenarios. The analysis shows that the effects on the U.S. economy depend critically on both the scope of the tariffs and the extent to which they reduce the trade deficit. Tariffs targeting Chinese imports alone generate only limited tariff revenue because imports are largely diverted to other trading partners. In contrast, broad-based tariffs raise substantial revenue, partially offsetting their negative effects on GDP. However, if these broader tariffs also succeed in reducing the U.S. trade deficit, the tariff base shrinks, resulting in lower tariff revenues. The findings highlight that while higher tariffs can generate government revenue, they also reduce economic efficiency by disrupting comparative advantage and raising production costs, underscoring the complex trade-offs policymakers face when designing tariff policy. 

Chinese authorities recently announced a growth target of "around 5 percent" for 2025, matching their 2024 target. Five percent is about half the pace of growth that China sustained from the 1980s to the early 2010s, but it is nonetheless quite high for an economy flirting with deflation and mired in a years-long property bust. Using an alternative indicator of Chinese GDP growth developed by Barcelona et al. (2022), we find that official GDP growth figures, which have been in line with the stated target, closely align with a broad range of Chinese economic indicators and do not appear to be overstated. We attribute this recent near-target growth has to a strong supply-side performance, supported by sustained global demand for Chinese goods and industrial policies promoting self-reliance. These factors have helped offset weak domestic consumption, which never fully recovered from COVID-era lockdowns and continues to be constrained by the ongoing property slump. 

We document that the economic impact of COVID-19 became less severe over the course of the pandemic despite recurring waves of infections. Comparing the second and fourth quarters of 2020, we identify three key factors behind this increased resilience. First, social distancing restrictions were generally less stringent during later waves. Second, households became less responsive to these restrictions, reducing their mobility by less than during the initial wave. Finally, businesses and consumers adapted to operating under pandemic conditions, allowing economic activity to recover despite continued mobility constraints. The findings suggest that both behavioral changes and economic adaptation played important roles in reducing the economic costs of the pandemic over time. 

We examine how the 2018–20 U.S.–China tariff increases affected long-run economic activity when accounting for investment and capital accumulation. Unlike most quantitative trade models, the analysis explicitly distinguishes between goods used for consumption and investment. The note shows that the U.S. imports a large share of its capital goods from China and imposed tariffs on many of these products, increasing the cost of investment and slowing capital accumulation. As a result, the model predicts larger long-run GDP losses than conventional trade models and assesses that the U.S. experiences larger GDP losses than China, despite China's greater export exposure. The findings highlight the importance of accounting for the composition of trade flows when evaluating the macroeconomic effects of tariffs.