Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/330291 
Year of Publication: 
2025
Series/Report no.: 
CITP Working Paper No. 022
Publisher: 
Centre for Inclusive Trade Policy (CITP), University of Sussex Business School, Brighton
Abstract: 
This paper introduces a new measure of tariff evasion through rerouting and applies it to the 2018 U.S.–China trade war, focusing on Vietnam as a transit country. We use transaction-level trade data and define rerouting as the flow of a granular eight-digit HS product from China, through Vietnam, to the United States within a given quarter. We consider several levels of geographic aggregation – country, province, and firm – which yield increasingly conservative estimates of rerouting. To examine how rerouting responded to the trade war, we exploit product-level variation in tariff exposure as well as the timing of tariff implementation. For the average product-level tariff increase, rerouting rises by 3.6 percentage points at the country level, 2.5 at the province level, and 1.4 at the firm level. These treatment effects represent a 21.1% increase in country-level rerouting, a 20.5% increase at the province level, and a 14.3% increase at the firm level compared to pre-trade war values. We also find that rerouting was largely driven by new establishments and Chinese-owned enterprises. Finally, our results indicate that the trade war raised revenue and profits among firms in Vietnam and altered their input composition in ways consistent with increased rerouting – specifically, reducing labor and increasing materials as a share of output.
JEL: 
F13
F14
F51
Document Type: 
Working Paper

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