Reuters
A worker gestures as a crane lifts goods for export onto a cargo vessel at a port in Lianyungang, China.
What would be the macroeconomic spillover if a trade war started in earnest between the United States and China, and a bilateral 25% tariff was slapped on all goods?
According to a range of economic models, the two combatants would suffer the largest losses, the International Monetary Fund said in a study released Wednesday — and there would be some winners, too.
The immediate impact would be a collapse of U.S-China trade, which would fall between 30% and 70% over the long run.
The dispute would lead to annual real GDP losses in a range from 0.5% to 1.5% for China and 0.3% to 0.6% for the United States, the international agency said. The effect on China is typically larger because it exports more to the U.S. than vice versa.
Four separate models show that China and U.S. would be damaged by trade war.
And although the U.S.-China bilateral trade deficit is reduced, there is no “economically significant change” in each country’s multilateral trade balance.
The effect on other countries overall exports would be positive, with Mexico and Canada benefitting the most.
Looking at individual sectors, the manufacturing industry will undergo “a large worldwide contraction,” with major fallout in the electronics and other manufacturing sectors in China.
The service sector would be a big winner in China while the U.S. agricultural sector would experience “a sizable contraction.”
Both countries would lose a significant number of jobs, with about 1% of the workforce lost in the U.S. agriculture and transportation equipment sectors, and 5% shed in China’s manufacturing sector.
China would eventually stop being the number one exporter of electronics and machinery to the U.S., replaced by other Asian countries, Canada, and Mexico, the IMF forecasts.
At the moment, talks between U.S. and Chinese officials continue in an effort to end their impasse with the hopes of an agreement by the end of April.
IMF Managing Director Christine Lagarde said that reports about the talks “seem reasonably positive.”
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