Harald Fadinger, Lei Li, Sophia Praetorius, and Jan Schymik

20 September 2026

A new VoxEU column by Harald Fadinger, Lei Li, Sophia Praetorius, and Jan Schymik examines how the US-China trade war affected production not only in the two countries directly involved, but also across manufacturing industries around the world.

Using establishment-level data covering millions of manufacturing plants in 50 major economies, the authors analyse how tariffs affected sales, employment, and production activity in third countries. The study also considers the role of multinational enterprises and their international affiliate networks.

The findings show that the effects of the trade war extended well beyond conventional trade diversion. Tariffs changed input costs, affected supplier-customer relationships, and encouraged multinational firms to reorganise production across countries.

Trade diversion and global production networks

US tariffs on Chinese final goods created opportunities for producers in third countries as Chinese products became less competitive in the US market. At the same time, however, the effects of tariffs depended strongly on firms' positions within global production networks.

Chinese tariffs on US final goods could reduce manufacturing activity in third countries when these firms supplied inputs or complementary products to US producers. Similarly, tariffs on intermediate goods affected production costs and competitiveness throughout international supply chains.

The analysis therefore shows that third countries cannot generally be classified as either winners or losers from a bilateral trade conflict. Outcomes depend on the direction of tariffs, whether final or intermediate goods are affected, and firms' connections to international suppliers and customers.

The role of multinational enterprises

Multinational enterprises played an important role in adjusting to the trade-war shock. Firms operating affiliates in several countries were better able to shift production, sourcing, and sales between locations in response to changing tariff conditions.

The study finds particularly strong adjustments among multinational establishments, while domestic firms generally responded less. Chinese multinational firms were especially active in shifting activities and affiliate relationships towards third countries.

Industries located in intermediate stages of global value chains faced some of the strongest pressures. They could simultaneously experience higher input costs and weaker demand from customers affected by the tariffs. Industries at the most upstream and downstream stages, by contrast, tended to perform better on average.

Regional differences

The effects also differed substantially across regions. Third countries in Asia and North America were, on average, more negatively exposed to the trade-war shocks, while Europe was comparatively insulated on average.

These regional averages nevertheless conceal considerable differences between individual industries and firms. A company closely integrated into US or Chinese production networks may remain highly exposed even when the average effect for its region is limited.

Implications for global value chains

The research highlights the importance of looking beyond bilateral trade flows when evaluating the consequences of tariffs. Modern production networks connect firms through suppliers, customers, intermediate inputs, and multinational affiliates across many countries.

Understanding these connections is therefore important for assessing economic resilience and the broader consequences of trade policy. Tariffs can redirect trade, but they can also reorganise production networks and transmit economic effects to firms and countries that are not directly involved in the original trade dispute.

The VoxEU column is based on the CEPR Discussion Paper
“The U.S.-China Trade War and the Geography of Global Production”.

Prof. Lei Li is Professor in Economics and Politics of China at the University of Göttingen.

For further information, please visit the external VoxEU Website.

Original article published by VoxEU / CEPR on 20 September 2026.