When Tariffs Change the Map of Global Trade

When Tariffs Change the Map of Global Trade

G. Monray on trade elasticities, Chinese imports and the countries that could gain from a more protectionist US

The US–China trade relationship has become one of the defining economic relationships of the 21st century. But tariffs do more than increase the price of imported goods. They can alter sourcing decisions, supply chains, production locations and the relative position of competing countries.

In his November 2024 study, “Evaluating US-China Trade Dynamics: Elasticities and New Key Players under Protectionist Policies,” published in the International Journal of Science and Research, G. Monray examined precisely that question. The research used 2023 US import data and focused on the 20 largest industry categories of US imports from China, representing 82.89% of the total value examined.

Rather than assuming that a large tariff would automatically eliminate Chinese exports, the study explored the relationship between tariff increases and import quantities through a simulated elasticity approach. It then examined which other countries might be positioned to supply part of the resulting gap.

The analysis is particularly interesting because it moves the discussion from “US versus China” toward a broader question: if trade patterns change, who captures the displaced economic activity?

An interview with G. Monray

Q: What was the central question behind this research?

G. Monray: The starting point was a relatively simple question: if the United States substantially increases tariffs on Chinese products, what actually happens to the trade relationship? It is tempting to assume that higher tariffs automatically produce a proportional reduction in imports. Economics tells us that the answer depends on elasticity. If demand is highly elastic, an increase in price can generate a large reduction in quantity demanded. If demand is inelastic, the response is much smaller.

I therefore wanted to examine whether US imports from China could realistically be characterized as relatively inelastic and, if so, what that would imply for the future structure of international trade.

Q: Why did you focus on the 2023 data?

G. Monray. 2023 provided a useful baseline immediately before the policy debate surrounding the potential increase in US tariffs following the 2024 US presidential election. The research identified the top 20 industries in US imports from China. Together, these categories represented approximately 82.89% of the total US imports from China considered in the study. The total value of US imports from China cited in the research was approximately $3.17 trillion.

That gave me a sufficiently broad basis for asking what might happen if a significant proportion of those imports were displaced.

Q: What did the elasticity analysis reveal?

G. Monray. The simulated elasticities were generally below one in absolute value. Under the study's selected scenario, the estimated values were predominantly around -0.5, although there was variation between industries.

This suggested relatively inelastic behavior: a very substantial increase in the tariff was assumed to produce a proportionally smaller reduction in the quantity imported.

But there is an important qualification. These were simulated elasticities, not estimates obtained from observing an actual future tariff shock. The research explicitly acknowledged that the assumption was strong, particularly because moving from an average tariff of approximately 1.5% to 60% would represent an enormous increase.

So the value of the exercise was not to claim that we knew exactly what would happen, but to explore the implications of a very large policy shock under explicit assumptions.

Q: You considered three scenarios. Why?

G. Monray. The three scenarios were designed to illustrate different magnitudes of adjustment. The first assumed that a 60% tariff would eliminate Chinese exports in the industries analyzed. The second assumed a 50% reduction. The third—and the one selected for the main analysis—assumed that approximately two-thirds of Chinese imports would disappear from the US market.

That third scenario was deliberately substantial, but not equivalent to assuming that Chinese exports would disappear completely.

The research then used the difference between the original and simulated quantities to calculate the implied tariff elasticity for each industry.

Q: One of the most interesting parts of the paper is that you did not stop with China.

G. Monray. Exactly. Once you consider that some Chinese exports could disappear from the US market, the next question becomes: where does the supply come from? International trade is rarely a simple bilateral relationship. If one supplier becomes less competitive because of tariffs, another producer may become more attractive.

That is why I looked at the countries already exporting to the United States in each of the major product categories. The objective was to identify countries with an existing production and export capability rather than hypothetical future competitors.

Q: How did you identify the potential substitute countries?

G. Monray. For each industry, I examined the top five exporting countries to the United States other than China. I then assigned a weighting system: five points for the highest-ranked supplier, four for the second, three for the third, two for the fourth and one for the fifth. The points were accumulated across the industries. This produced an indicator of the countries that already had a significant presence across multiple product categories and therefore could potentially increase their exports if Chinese supply declined.

It is important to describe this as potential supply substitution, rather than as a forecast that these countries would necessarily replace China.

Q: Which countries emerged as particularly relevant in the analysis?

G. Monray. Mexico and Canada stood out because of their proximity to the United States and their existing trade relationships. Mexico received the highest aggregate score in the study's weighting exercise, followed by Canada. Vietnam also appeared as an important potential supplier in several categories. Germany, Japan, Taiwan, Korea, Ireland, India, Brazil and other countries appeared in particular industries. The important point is not simply the position of one country. It is the emergence of a more geographically diversified supply network.

Q: Why is Mexico particularly interesting?

G. Monray. Mexico has a structural advantage because of geography and its existing integration with the US economy. The study highlighted the importance of the USMCA framework, as well as the competitive manufacturing capabilities already established in Mexico. This means that Mexico does not have to build an entirely new export relationship with the United States. If Chinese products become significantly more expensive because of tariffs, proximity, existing production capabilities and established trade relationships can become important competitive advantages.

That does not mean Mexico automatically replaces China. Capacity, investment, infrastructure, productivity, rules of origin and the ability to scale production would all matter.

Q: You also highlighted Vietnam. Why?

G. Monray. Vietnam is interesting because it had already become an important manufacturing location in Asia and had attracted significant foreign direct investment. The research suggested that Chinese companies and supply chains relocating production could potentially reinforce Vietnam's position.

This is a broader phenomenon in international business: trade policy can influence not only where goods are sold, but also where goods are produced.

A tariff imposed at the US border can therefore generate investment decisions thousands of kilometers away.

Q: Does that mean protectionism necessarily brings manufacturing back to the United States?

G. Monray. Not necessarily. That is one of the fundamental questions raised by the study.

A tariff changes relative prices, but companies still consider labor costs, capital costs, infrastructure, logistics, proximity to markets, supplier ecosystems, taxation, regulation and existing production capabilities. Consequently, the result may not be simply China → United States. It could instead become: China → Mexico or China → Vietnam → United States or involve a more complex network across several countries.

Trade diversion and supply-chain restructuring can therefore be as important as the direct bilateral effect of the tariff.

Q: What role does elasticity play in understanding this process?

G. Monray. Elasticity gives us a way of thinking about how strongly trade flows respond to changes in relative prices. But elasticity should not be interpreted in isolation. If the United States imposes a tariff, Chinese exporters may reduce margins, change currencies or prices, relocate production, alter their supply chains or look for alternative markets. US importers may also change suppliers. Therefore, the observed response is the result of several economic mechanisms operating simultaneously. That is why the paper connected elasticity with competition, exchange rates, supply-chain changes and the availability of alternative suppliers.

Q: The paper also discusses the Regional Comprehensive Economic Partnership, or RCEP. Why is that relevant?

G. Monray. Because global trade is increasingly organized around regional production networks. RCEP is particularly relevant to the Asian economic system. Its rules of origin and regional integration can facilitate greater vertical trade among participating Asian economies.

From that perspective, a more protectionist US trade policy does not necessarily isolate China. It can also encourage Asian economies to deepen intra-regional trade and investment. The result could therefore be a gradual reconfiguration of global trade rather than simply a reduction in international trade.

Q: Is this ultimately a paper about tariffs or about supply chains?

G. Monray. I would say it is about the interaction between the two. Tariffs are the policy instrument. Supply chains are one of the mechanisms through which companies respond. That distinction is important for managers. A government may change a tariff overnight, but a multinational corporation cannot necessarily change its production network overnight. Factories, suppliers, contracts, logistics infrastructure, intellectual property, skilled labor and quality systems take years to develop. Therefore, companies anticipating major trade-policy changes have to think strategically rather than simply react to the tariff itself.

Q: What was the main lesson you wanted policymakers and business leaders to take from the study?

The main lesson was that international trade should be understood as a system. Changing the relationship between two countries can create opportunities for third countries. If Chinese exports to the United States decline, somebody else has to decide whether they have the capacity and competitiveness to fill part of the gap. That is where countries such as Mexico, Canada, Vietnam, Japan, Taiwan and others become relevant.

The study therefore tried to move the discussion from “How much will China lose?” to the broader question: “Where will the displaced trade go?”

The broader significance of this research lies in its shift of perspective.

Trade policy is often discussed in bilateral terms: one country imposes a tariff on another country. But businesses operate through increasingly complex international production networks.

A tariff can therefore have effects far beyond the two countries directly involved.

For the author the central economic insight was that the future of US–China trade cannot be understood solely through bilateral trade balances. Elasticity, alternative suppliers, geography, regional trade agreements, investment flows and supply-chain capabilities all interact.

The study's analysis was based primarily on 2023 trade data and a simulated policy scenario, rather than observed outcomes from a future 60% tariff. Its conclusions should therefore be understood as scenario analysis rather than a forecast of actual 2024–2026 trade flows.

That distinction is important. The lasting contribution of the paper is less about predicting a precise trade outcome and more about providing a framework for asking a strategic question:

When trade barriers reshape the economics of one supplier, which other economies are positioned to capture the resulting opportunity?

Publication

Monray, G. (2024). *Evaluating US-China Trade Dynamics: Elasticities and New Key Players under Protectionist Policies.* International Journal of Science and Research, 13(11), 1360–1365. DOI: 10.21275/SR241120095631.

Historical note: The analysis reflects the information, assumptions and policy context available when the research was conducted in 2024. It should not be presented as a measurement of actual US–China trade conditions in 2026.