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Evaluating the Impact of the US–China Trade War

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  • Ken Itakura

Abstract

We evaluate the impact of the US–China trade war using a dynamic computable general equilibrium (CGE) model of global trade. We conduct ex ante simulation analysis exploring three scenarios to understand how the trade war affects import tariffs, investment, and productivity. The escalation of the trade war reduces gross domestic product (GDP) in China and the USA by −1.41% and −1.35%, respectively. The trade war reduces nearly all sectoral imports and outputs in both countries. To reflect the important role of global value chains (GVCs), we modify the dynamic CGE model with agent‐specific import demands, and we explore the difference between the results for the two models relating to the trade war impacts on GDP and bilateral trade. When GVCs are accounted for, the negative impacts on bilateral trade are more widespread across countries, and world GDP in the modified model is reduced by −$US450 billion. These results suggest that the GVCs play substantial role in determining trade responses at the disaggregated level.

Suggested Citation

  • Ken Itakura, 2020. "Evaluating the Impact of the US–China Trade War," Asian Economic Policy Review, Japan Center for Economic Research, vol. 15(1), pages 77-93, January.
    • Handle: RePEc:bla:asiapr:v:15:y:2020:i:1:p:77-93
    DOI: 10.1111/aepr.12286
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    Cited by:

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    2. Ignatia Martha Hendrati & Unggul Heriqbaldi & Miguel Angel Esquivias & Bekti Setyorani & Ari Dwi Jayanti, 2023. "Propagation of Economic Shocks from the United States, China, the European Union, and Japan to Selected Asian Economies: Does the Global Value Chain Matters?," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 91-102, January.
    3. Tampubolon, Jongkers, 2023. "Food and agricultural sector in Indonesia’s economic growth during COVID-19 pandemic: an ARDL approach," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 9(2), June.
    4. Terrie Walmsley & Peter Minor, 2020. "US Trade Actions Against China: A Supply Chain Perspective," Foreign Trade Review, , vol. 55(3), pages 337-371, August.
    5. Mudan Wang & Xianqiang Mao & Youkai Xing & Jianhong Lu & Peng Song & Zhengyan Liu & Zhi Guo & Kevin Tu & Eric Zusman, 2021. "Breaking down barriers on PV trade will facilitate global carbon mitigation," Nature Communications, Nature, vol. 12(1), pages 1-16, December.
    6. Ridley, William & Devadoss, Stephen, 2024. "Determinants of Policy Responses in the US–China Tit-for-Tat Trade War," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 0(Preprint), January.
    7. Bekkers, Eddy & Schroeter, Sofia, 2020. "An economic analysis of the US-China trade conflict," WTO Staff Working Papers ERSD-2020-04, World Trade Organization (WTO), Economic Research and Statistics Division.
    8. Yanfang LYU & Linhui ZHAO & Dong WANG, 2023. "An Analysis of the Impact of US-China Trade Frictions on Chinese Manufacturing Industries from the Perspective of Trade Gains," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 43-56, December.

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