Towards a Trade War in 2025: Real Threats for the World Economy, False Promises for the US

Antoine Bouët, Leysa Maty Sall and Yu Zheng

Working Papers from CEPII research center

Abstract: Using the MIRAGE-Power model, we simulate a trade war initiated in 2025 by the new US administration. The central scenario consists in a 60 percentage point tariff increase on all US imports from China, a 10 percentage point tariff increase on all products from other partners, except Canada and Mexico, and reciprocal tariff retaliation. World GDP and world trade decrease respectively by 0.5% and 3.4% in volume, with significant losses for the US and China, and gains for Canada and Mexico. A substantial reallocation of bilateral goods trade flows is taking place at global level. Additional scenarios show that: details of the tariff reform matter; the discriminatory tariff treatment of China benefits other trading partners; trade retaliation increases US economic losses; if Non-Tariff Measures are included in this trade war, the consequences are worse; if Canada and Mexico are included in the trade war, both experience significant losses in terms of GDP and trade. Last, we show that the US will not be able to replace the federal income tax with tariff revenues, even with a revenue-maximizing tariff.

Keywords: US Trade Policy; Tariff; Trade Retaliation; Computable General Equilibrium Models (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2025-02
New Economics Papers: this item is included in nep-cna and nep-int
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