Structural Transformation in the Era of Trade Protectionism

Abstract

This paper investigates the impact of trade protectionism between the two largest economies on the structural transformation of a bystander developing country. Leveraging the US-China trade war episode, we uncover Vietnam’s structural transformation amid a harbinger of the end of globalization. Using Vietnam’s firm census and labor force survey data, we find that regions that were more exposed to the trade war shifted from informal agriculture to formal manufacturing. The trade war also led to increased firm formality and skill upgrading, accompanied by demand for skilled labor, particularly among females. Additionally, the trade war accelerated Vietnam’s urbanization through labor reallocation.

Keywords: Trade Protection, Structural Transformation, Trade Diversion, US-China Trade War, Vietnam

JEL Classification: F14, F16, F63, O14, O19