Modelling the Consequences of the U.S.-China Trade War and Related Trade Frictions for the U.S., Chinese, Australian and Global Economies

We model the U.S.-China trade war, a potential U.S.-China trade deal, and the effects of import restrictions on Australian coal. We begin by examining the effects of the bilateral tariff exchange on the economies of the U.S., China, Australia and the rest of the world. We then go on to examine a scenario in which a U.S.-China trade deal is struck involving removal of the trade war tariffs and an undertaking by China to reduce its bilateral trade surplus with the U.S. by eliminating all pre-trade war tariffs on U.S. goods.We end by noting that there are dimensions to the U.S.-China tariff exchange that go beyond concerns on the part of the U.S. that are purely economic. In this context, the tariff exchange can be viewed in part as a continuation of a wider recent pattern of use of trade instruments to advance political aims. Australia itself appears to have been subject to such instruments, with reports of a slowdown in processing of Australian coal imports through Chinese ports. We simulate the effects on Australia and China of a rise in Chinese barriers to Australian coal imports.