Press release -

The United States Could Benefit from the Trade War, However...

The additional tariffs on US imports from China threatened by US President Donald Trump would negatively impact China, while giving the US, Europe, and the UK moderate advantages. However, Chinese retaliatory tariffs could turn the US advantage into a disadvantage, while somewhat reducing China’s losses. These retaliatory measures would lead to even greater advantages for the UK and the EU. This is the result of the ifo Institute’s latest calculations.

“If additional US tariffs on imports from China caused Chinese exports to drop, EU member states would be in a position to export more to the US. However, both the positive effects forthe UK, the EU, and the US and the negative consequences for China are limited,” says ifo researcher Marina Steininger. “Nevertheless, the US-China trade war has adverse effects all around, as it further weakens consumer and investor confidence worldwide in the already fragile global economy,” says ifo President Clemens Fuest.

If the US imposed 10 percent tariffs on additional imports worth USD 300 billion, this would mean additional income of EUR 94 million for Germany, EUR 129 million for France, EUR 183 million for Italy, EUR 25 million for Spain, and EUR 86 million for the United Kingdom. It would amount to EUR 1.5 billion for the EU28 and EUR 1.8 billion for the US. China would see losses of EUR 24.8 billion. 

“This stems from the fact that unilateral US tariff increases favor its producers and increase revenue,” Steininger says. At the same time, US consumers could suffer as a result, as tariffs weaken household purchasing powerand reduce real wages. However, some previously imported goods would be replaced by domestic production, as tariffs would make imported goods more expensive. “This would cause imports to drop, while the demand for domestic goods would increase (see scenario 1), resulting in positive real income effects overall.”

However, the US President is walking a fine line. If China imposes a further 10 percent tariff on US imports, it could see its losses fall to EUR 21.6 billion, while turning profits for the US into losses of EUR 1.5 billion. The UK and the EU would have the last laugh and come off best. Germany would see additional income of EUR 323 million, with EUR 168 million for France, EUR 231 million for Italy, EUR 25 million for Spain, and EUR 58 million for the United Kingdom. The EU28 would benefit to the tune of EUR 1.7 billion (scenario 2).

Neither the depreciation of the yuan nor the negative effects of growing uncertainty for investors were included in the calculations.

Regions Scenario 1 Scenario 2
  Change in real income in Euro million
Germany 94 323
France 129 168
Italy 183 231
Spain 25 25
United Kingdom 86 58
EU28 1,498 1,724
United States 1,784 -1,546
China -2,4769 -2,1646
Rest of the world 3,844 3,535

Please note: Real income includes customs revenue. Scenario 1 simulates US unilateral protective tariffs on China: 25 percent protective tariff on US imports from China worth USD 250 billion. + 10 percent protective tariff on US imports from China worth USD 300 billion. In scenario 2, China responds with countermeasures and introduces a 10 percent protective tariff on US goods. The US protective tariffs on China are identical to scenario 1. The depreciation of the yuan is not taken into consideration in the scenarios.

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Harald Schultz

Harald Schultz

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