Date of Award
3-5-2026
Degree Type
Thesis
Degree Name
Doctor of Philosophy (PhD)
Discipline
Social Sciences
Department
Economics
First Advisor
Prof. QIU Dongxiao Larry
Second Advisor
Prof. YU Zhen
Abstract
In 2018, the United States initiated a trade conflict with China, prompting a counter-response by the latter. Despite extensive research into the ramifications of the US-China trade conflict, the intricacies of China’s strategic formulation of retaliatory tariffs remain unclear. This study focuses on how the trade imbalance influences China’s retaliatory tariff strategies during the trade war. Our findings suggest that China’s retaliatory measures mainly concentrate on products with which China maintains a bilateral trade surplus vis-à-vis the United States. On an extensive margin, notwithstanding the comprehensive tariff imposition on US imports, products that represent a surplus are more likely to be targeted by Chinese retaliatory actions. On an intensive margin, China tends to impose higher retaliatory tariffs on products that exhibit a larger trade surplus with the US. We show that such a retaliatory strategy is rational in a context where countries consider the trade imbalance and their international portfolio. A greater trade surplus may predict a higher optimal tariff when a country’s imports are less than its foreign asset holdings; this aligns with the scenario between China and the US. Finally, using a quantitative trade model in scenarios both with and without trade imbalances, our analysis indicates that China’s actual retaliation would achieve higher welfare gain compared with counterfactual uniform retaliatory tariffs with the same average mean when we consider the trade imbalance in the model. Also, we find that China’s retaliation results in a welfare gain when trade imbalances exist, whereas it leads to a welfare loss when there are no trade imbalances. This finding further corroborates our theoretical prediction that the optimal tariff for China should increase in proportion to the trade imbalance between China and the US.
Language
English
Copyright
The copyright of this thesis is owned by its author. Any reproduction, adaptation, distribution or dissemination of this thesis without express authorization is strictly prohibited.
Recommended Citation
Li, J. (2026). Retaliation management : trade imbalance and China’s retaliatory tariffs during the 2018 trade war (Doctoral thesis, Lingnan University, Hong Kong). Retrieved from https://commons.ln.edu.hk/otd/272/
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