China and US to loose big if more tariffs are applied
If the US was to apply its 25 percent tariffs on all products from China, that country could lose up to € 171.3 billion in exports to the US, while the US exports to China would contract by € 51 billion if China also applies 25 percent on all imports. That is the result of a new report by ifo researchers Gabriel Felbermayr and Marina Steininger for the EconPol Europe network.
The deadline for the Sino-US negociations runs out on Friday, 1 March. “China loses absolutely and relatively much more", say Felbermayr and Steininger. Although US President Donald Trump may claim victory based on an improved trade balance with China, the current US trade deficit with Europe would become even larger and cause further transatlantic conflict. Tariffs of 25 percent would lower US GDP by € 9.5 billion and Chinese GDP by € 30.4 billion. Such a trade war would increase value added in the US manufacturing sector by 0.6 percent, while the agri-food sector would shrink by 1.22 percent. In China, manufacturing would decline by 0.8 percent.
The analysis also reveals that the tariffs and counter-tariffs implemented as of today would already see US exports to China fall by € 37.1 billion and cost € 2.6 billion of GDP. Chinese exports to the US would go down by € 52.1 billion, with the country losing € 5.7 billion of GDP. Europe, in contrast, could register a GDP gain of € 345 million.
“The current tariffs and counter-tariffs give the US a slightly improved trade balance with China,” say Felbermayr and Steininger. “If the objective of President Trump is to use trade policy to increase the economic distance with China, an escalation in the tariff war would help. But, as is the case with every war, such a strategy comes with high costs. Trump may claim victory as the US manufacturing sector grows while the Chinese one shrinks, and the bilateral trade balance of the US with China improves. However, with the EU it deteriorates and Europe’s trade balance with the US becomes even larger.”
The researchers use a state-of-art general equilibrium trade model to simulate the impact of the escalating dispute. They analyse four scenarios based on unilateral actions by the US in goods trade, and allowing for Chinese counter-measures.
Publication
Gabriel Felbermayr and Marina Steininger: Trump’s trade attack on China – who laughs last?, EconPol Policy Brief 13, February 2019