Trade diversion and labor market adjustment: Vietnam and the U.S.-China trade war

This paper investigates the effects of the U.S.-China trade war on labor market outcomes in a third country, Vietnam. We exploit variation in the extent of U.S. tariff hikes on Chinese imports across industries as well as pre-existing industry employment patterns in Vietnam. We find that Vietnamese individuals and districts that are more exposed to the trade war experience higher employment and lower informal employment in traded industries. Our findings reveal that bilateral trade policy can substantially affect labor markets in third countries.