The Day After Tomorrow: Evaluating the Burden of Trump's Trade War

Meixin Guo, Lin Lu, Liugang Sheng and Miaojie Yu
Additional contact information
Meixin Guo: School of Economics and Management Tsinghua University Beijing, China Author email: guomx@sem.tsinghua.edu.cn
Lin Lu: School of Economics and Management Tsinghua University Beijing, China Author email: lulin@sem.tsinghua.edu.cn

Asian Economic Papers, 2018, vol. 17, issue 1, 101-120

Abstract: During his U.S. presidential campaign Donald Trump threatened China with the imposition of high import tariffs on its exports to the United States. To evaluate the repercussions of such an action, this paper uses Eaton and Kortum's 2002 multi-sector, multi-country general equilibrium model with intersectional linkages to forecast how exports, imports, output, and real wages would change if Trump's threat of 45 percent tariffs is carried out. To view plausible scenarios, we evaluate the case of a unilateral action on the part of the United States, as well as a scenario where China retaliates by imposing an equally high 45 percent tariff on its imports from the United States. In addition, because the high U.S. trade deficit with China is a factor that underpins calls for tariff action, we explore simulations where the trade balance is restored to balance as well as a scenario in which the trade balance is unchanged. In all of the scenarios, the calibration exercise suggests that a trade war triggered by high U.S. import tariffs will lead to a collapse in U.S.–China bilateral trade. In all of the scenarios, the United States will experience large social welfare losses, whereas China may lose or gain slightly depending on the effect of trade war on the U.S.–China trade balance. Globally, some small open economies may experience small benefits, while other countries may suffer collateral damage.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/asep_a_00592 (application/pdf)
Access to PDF is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:asiaec:v:17:y:2018:i:1:p:101-120

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=1535-3516

Access Statistics for this article

Asian Economic Papers is currently edited by Wing Thye Woo, Sungbae An, Fukunari Kimura and Ming Lu

More articles in Asian Economic Papers from MIT Press
Bibliographic data for series maintained by The MIT Press ().