Exchange rates and tariffs: Unravelling their impacts on China's ICT exports from product sophistication perspective

China’s information and communication technology (ICT) exports have faced intense trade friction. To investigate why China’s ICT industry has been targeted, this paper examines it before the Sino-U.S. trade war erupted. We first investigate whether changes in exchange rates and tariffs affect China’s ICT exports differently depending on their sophistication levels. We estimate the exchange rate and tariff effects for 44 ICT HS 4-digit export categories included in Attachment A for the WTO Information Technology Agreement (ITA) by employing high-dimensional fixed effects on bilateral trade data between China and 196 trading partners between 2003 and 2018. The results indicate that Chinese yuan appreciations reduce ICT exports and that exchange rate elasticities are lower for more sophisticated products. Tariffs reduce exports much more than appreciations do, especially for highly sophisticated ICT exports. We also report product-level exchange rate elasticities for important ICT products and present an industrial development strategy.