Trade policy under structural realignment: Empirical evidence and strategic implications for Sino-US trade relations

Luk, Boris Py and Peel, Richard Stanley and Gilani, Sayed Abdul Majid and Boath, Jack Charles and Lihe, Raymond (2026) Trade policy under structural realignment: Empirical evidence and strategic implications for Sino-US trade relations. Journal of Policy Modeling. p. 107092. ISSN 0161-8938

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Abstract

This study evaluates the effectiveness of unilateral tariffs as a trade policy instrument for correcting bilateral trade imbalances between the United States and China. Using a mixed-methods research framework, the study integrates macroeconometric elasticity estimation, multi-sector general equilibrium scenario modelling and firm-level survey evidence to assess the economic and strategic consequences of tariff-based trade policy. Two log-log ordinary least squares (OLS) regression models are estimated to quantify the responsiveness of bilateral imports and exports to US and Chinese tariff measures, while calibrated scenario simulations evaluate sectoral production responses under alternative tariff regimes. The empirical findings demonstrate that unilateral tariffs were ineffective in reducing the overall US trade deficit with China. Instead, they accelerated trade diversion towards alternative manufacturing economies in Southeast Asia and Mexico, increased production costs for domestic firms and transferred much of the tariff burden to US consumers. The results further show that bilateral trade balances are primarily determined by macroeconomic fundamentals, particularly the national savings-investment identity, rather than tariff policy alone. Survey evidence indicates that prolonged policy uncertainty has driven lasting adjustments to supply chain structures, sourcing strategies and cross-border investment decisions. The study concludes that effective trade policy should prioritise targeted industrial policy, resilient supply chain development and strengthened multilateral dispute resolution mechanisms rather than reliance on broad-based unilateral tariffs.

Item Type:	Article
Identification Number:	10.1016/j.jpolmod.2026.107092
Dates:	Date Event 1 August 2026 Accepted 12 August 2026 Published Online
Uncontrolled Keywords:	Sino-US, International Trade, Tariffs, Trade Deficits, Structural Realignment
Subjects:	CAH17 - business and management > CAH17-01 - business and management > CAH17-01-04 - management studies
Divisions:	Business School > Management, Business and Marketing
Depositing User:	Gemma Tonks
Date Deposited:	25 Aug 2026 11:26
Last Modified:	25 Aug 2026 11:26
URI:	https://www.open-access.bcu.ac.uk/id/eprint/17187

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