Impact of US-China trade war on Asian economies: neural network multilayer perceptron approach
| DOI | https://doi.org/10.1108/JCEFTS-08-2022-0056 |
| Published date | 28 March 2023 |
| Date | 28 March 2023 |
| Pages | 172-189 |
| Subject Matter | Economics,International economics |
| Author | Mohd Nayyer Rahman,Badar Alam Iqbal,Nida Rahman |
Impact of US-China trade war on
Asian economies: neural network
multilayer perceptron approach
Mohd Nayyer Rahman
Department of Commerce, Aligarh Muslim University, Aligarh, India
Badar Alam Iqbal
School of Transdisciplinary Research and Graduate Studies,
University of South Africa, College of Graduate Studies, Pretoria, South Africa, and
Nida Rahman
Ministry of Commerce and Industry, New Delhi, India
Abstract
Purpose –This study aims to find the impact of the trade war between the USA and China on Asian
economies. Apart from macroeconomic variables associated with trade, this study explicitly creates a trade war
scenario and trade war participant dummies. Using the neural network multilayer perceptron, this study checks
for the causal linkages between thepredictors and target output for the panel of Asian economies and the USA.
Design/methodology/approach –A conceptual model of the aftereffects of trade war in a quadrant is
developed. Variables relatedto trade and tariffs are included in the study for a panel of 19 Asian economies.
The feedforward structureof neural network analysis is used to identify strong and weak predictorsof trade
war.
Findings –The hidden layers of the multilayer perceptron reveal the inconsistency in linkages for the
predictors’services exports,tariff measures, anti-dumping measures, trade war scenariodummy with gross
domestic product. The findings suggest that to curtail the impact of the trade war on Asian economies,
predictorswith neural evidence must be paid due weightage in policy determinationand trade agreements.
Originality/value –The study applies a novel and little explored AI/ML technique of Neural Network
analysis with training of 70% observations. The paper will provide opportunity for other researchers to
exploretechniques of AI/ML in trade studies.
Keywords Feedforward structure, Tariffs, Anti-dumping measures, Countervailing duties,
Merchandise exports, Merchandise imports
Paper type Research paper
1. Introduction
The asymmetries between the Global South and Global North are leading to altered economic and
political dynamics. One such dynamic is the issue of trade war emerging between the USA and
China. The world economy is currently facing a slowdown due to COVID-19 and its aftereffects.
The global economy is hit by the tariff war between the two manufacturing giants of the global
economic order, the USA and China. We attempt to build a discussion on the growth dynamics of
the trade war between the USA and China. The past few years have witnessed escalating trade
tensions between the USA and China, particularly on import duties and trade deficits. Each side is
justifying its stand but, at the same time, being using protectionist measures in trade policy.
JEL classification –C45, F10, F14, F18
JCEFTS
16,2
172
Journalof Chinese Economic and
ForeignTrade Studies
Vol.16 No. 2, 2023
pp. 172-189
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-08-2022-0056
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1754-4408.htm
Journalists, researchers, governments alike were quick to label it as the emergence of the trade war.
Few see this as an east versus west dichotomy. The riseof China as a dragon spreading its wings in
the Asian region is a fact, which is a subtle challenge to the USA. The USA has already taken all
steps to counter the One Belt One Road (OBOR) initiative of China, considering it a geopolitical
game changer (Rahman and Rahman, 2019). The recent Indo-Pacific investment policy of the USA
is a testimony that China wants to use OBOR to increase export and move manufacturers towards
strategic geographical regions. However, as trade war clouds, manufacturers from mainland China
have started moving their operations to Malaysia and Vietnam (Rapoza, 2018). The euphoria of full
employment and internalization of control is becoming a new trend with the trade war emergence.
The USA has raised the duty on around 180 Chinese products imported by the USA.
Raising the duties escalated the issue,and in return, China initiated the non-tariff barriers to
curtail the US imports in China. However, there have been recent shifts in the policy from
both sides. Both the USA and China held talks with tariff cuts as the outcome, and it was
expected to get implemented with a full-fledged agreement before March 2019, but things
became uncertain due to COVID-19. The Trump administration had clarified that the
Chinese CEO’s arrest was not in their information while they were in the G-20. This issue
can be seen in the bigger picture of putting pressure on China to get down negotiating on
specified terms. The US secretary has alreadyindicated that reducing the trade deficit with
China will remain its objective as a long-term strategy (ST, 2018). The USA has put up
tariffs on Chinese products worth $250bn, while China has responded with $110bn tariff
hike (Schoen and Pramuk, 2018). There is no doubt that Trump is using America First to
create a euphoria of the neo-protectionist approach. Trump has used the rhetoric of trade
barriers to give a signal indicatingmore such protectionist policies. There is ample evidence
that Trump’s policies can be labelled as protectionist and has a substantial impact on the
supply chain. Trump’s new tariffs in 2018 cover roughly 12% of all US imports (Bown,
2018). Thus, it is clear that the first benefit is political and not economical, given the
upcoming presidentialelections.
Regarding the US economy, experts have raised concerns that Trump’s conservative
move may negatively affect the US economy amid few right punches. Reuter had surveyed
104 economists, which revealed that the trade war would hurt the American economy
(Reuters, 2018). At the same time, others believe that the trade war will not affect the USA.
While there is a general agreementof the negative impact on the US economy, it is believed
that some sectors in other nations potentially stand to gain; however, these gains are
expected to be highly specific and limited to few sectors. Different opinions on the issue of
trade war indicate one commonality: it will hinder the world economic growth and may
hamper the speed of economic recovery.
More or less, there will be a negative impact on the US economy due to trade war. There
have been reports and discussions arguing for the possibility of recession due to trade war
(Layne, 2018). The study is important both academically and as a policy issue due to the
significant impact of the trade war on regional and global economies. As it is clear that due to
the trade war, China’s economy will suffer, as 50% of China’sexportstotheUSAhavebeen
targeted under tariffs. China may lose in items such as auto parts, engineering goods, electrical
goods and chemicals, which can become an edge for other countries producing/manufacturing
the same. For instance, the Ministry of Commerce, India, has identified several critical items for
exporting to the USA, where now India can have an edge due to the US–China trade war
(Business Today, 2018). The world economy may also feel the burn of a trade war if not tackled
earnestly. Already eurozone survey has demonstrated weaker business activity due to the trade
war. This also motivates the researchers to undertake studies on US–China trade war. The
epicentre of the future systematic slowdown in the world economy can be the US–China trade
Impact of
US–China
trade war
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