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| The Asymmetric Effects of Import Tariffs on the Global Value Chains of Both Trading Partners |
| YI Zhen, ZHANG Xiyuan, ZHU Chao
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| School of Finance, Capital University of Economics and Business |
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Abstract Tariff variations exert direct effects on global commodity flows, industrial configurations, and worldwide economic welfare, ultimately shaping the division of labor and the distribution of gains in international trade. This paper investigates the impact of a country's tariff policy on both the level and position of Global Value Chain (GVC) participation for itself and its trading partners, and assesses the ramifications of this trade barrier for global production patterns. We first develop a partial equilibrium model of an open economy to examine the effects of tariffs on GVC participation intensity and positioning. In the theoretical framework, tariffs operate as a price markup that shapes micro-level firms' import-export decisions.
This paper delineates three channels through which import tariffs affect GVC engagement.(1) Intermediate input structure. Tariff hikes alter the relative prices of intermediate goods between the home country and its trading partner, inducing adjustments in input composition via relative demand substitution. In response, firms re-optimize their sourcing strategies by seeking alternative global suppliers or relocating production stages domestically to hedge against risks, thereby diminishing both the intensity and positioning of GVC participation. (2) Factor input structure. Tariff increases raise the relative user cost of tradable capital inputs while simultaneously lowering the relative cost of labor inputs. This relative price shift prompts firms to reallocate production towards more labor-intensive and lower value-added stages, consequently reducing both the intensity and positioning of GVC participation. (3) Technology gap between trading partners. Higher tariffs escalate the costs associated with GVC participation, which crowds out R&D expenditure, curtails technology spillovers embodied in imports, and attenuates innovation incentives. The resultant widening of the technology gap, both between the trading partners and vis-à-vis the global technological frontier, further depresses the intensity and positioning of GVC participation.
The main findings of this paper are threefold. First, an increase in import tariff rates reduces the intensity and positioning of GVC participation for both trading parties through the aforementioned channels, including the intermediate input structure, the factor input structure, and the technology gap. Second, the impact of import tariff hikes exhibits marked asymmetry between the home country and its trading partner. When the home country is relatively disadvantaged vis-à-vis its trading partner in terms of GVC participation intensity, GVC positioning, level of economic development, trade infrastructure, and labor endowment, raising its import tariffs inflicts a disproportionately larger negative effect on its own GVC engagement, which is a phenomenon akin to proactively “hitting a stone with an egg.” Third, empirical evidence corroborates the theoretical predictions and further reveals that a 10-percentage-point increase in a country's import tariff rate reduces the GVC positioning of the home country and its trading partner by 3.82 and 2.67 positions, respectively.
The marginal contribution of this paper is twofold. On the one hand, we identify and clarify the mechanisms through which tariff policy affects the intensity and positioning of GVC participation, while systematically comparing the differential effects of tariff policy on the two trading parties. On the other hand, whereas the extant literature predominantly concentrates on the domestic repercussions of tariff policy, this study further demonstrates that, conditional on the economic power asymmetry between the two parties in tariff competition, tariff changes of equivalent magnitude generate heterogeneous policy outcomes across trading partners. This offers novel analytical perspectives and empirical evidence for deciphering the mechanisms and magnitudes through which tariff policy shapes GVC production in both the home country and its trading partner. Moreover, our investigation sheds light on the underlying rationale for countries' adoption of discriminatory trade policies and serves as a cautionary note that a country should more rigorously evaluate and anticipate the policy costs and relative gains of protectionist trade measures from perspectives of both the domestic structure and international trade.
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Received: 04 January 2026
Published: 19 October 2026
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