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The Impact of a Trade War: Assessment of the Current Tariffs and Alternative Scenarios

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  • Karyne B. Charbonneau

Abstract

This note uses Charbonneau and Landry’s (2018) framework to assess the direct impact of the current trade tensions on the Canadian and global economies, as well as possible implications if the conflict escalates further. Overall, my findings show that the estimated impact of current tariffs on real gross domestic product (GDP) remains relatively small, which is in line with the literature on gains from trade, but the impact on trade is much larger. With a modest escalation of trade tensions, monetary policy in Canada could face a situation of rising prices and falling real GDP. This dilemma would be worse if Canada takes an active role in the trade conflict. If trade tensions rise more dramatically, the effect on Canada would depend on Canada’s access to the US market. A significant and more broad-based rise in tariffs could lead to large global impacts.

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  • Karyne B. Charbonneau, 2019. "The Impact of a Trade War: Assessment of the Current Tariffs and Alternative Scenarios," Staff Analytical Notes 2019-20, Bank of Canada.
    • Handle: RePEc:bca:bocsan:19-20
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    References listed on IDEAS

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    Cited by:

    1. Gu, Xin & Zhang, Weiqiang & Cheng, Sang, 2021. "How do investors in Chinese stock market react to external uncertainty? An event study to the Sino-US disputes," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Recent economic and financial developments; Trade Integration;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy

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