Economic Impacts of the US–China Trade War on the Asian Economy: An Applied Analysis of IDE-GSM

April 2019

ABSTRACT

In this paper, we try to estimate the economic impacts of the US–China trade war that began in 2018. We used IDE-GSM, a computational general equilibrium simulation model, to estimate the economic impacts of a “full-confrontation” scenario wherein both countries impose 25% additional tariffs on all goods imported from each other for three years 2019 onwards. In our calculation, the economic impact for the US is -0.4% and -0.6% for China. Some Asian countries actually benefit from the trade war. As far as it remains bilateral, the trade war is only an issue for the concerned parties. We also ran the US–world trade war scenario, wherein the US and all other countries impose a 25% additional tariff on all goods. The negative impact on the global economy is 1.7%, much greater than the 0.1% impact from the US–China trade war. Thus, it is clear that the world cannot afford to engage in a multilateral trade war.

Keywords: US–China trade war, IDE-GSM

JEL classification: C68, F13

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