The Clayton Yeutter Institute for International Trade and Finance at the University of Nebraska-Lincoln published a review of Trump’s proposal to “escalate US tariffs against all trade partners, with exceptionally high tariffs on Chinese goods.” The authors, Edward J. Balistreri, Duane Acklie Chair and Professor of Economics in the College of Business at the University of Nebraska-Lincoln, and Christine McDaniel, Senior Research Fellow at the Mercatus Center at George Mason University and Non-Resident Fellow at the Yeutter Institute at the University of Nebraska-Lincoln, find that “US tariff escalation creates a lucrative set of opportunities for everyone else.”
They explore several scenarios, all assuming the 2018 tariffs remain in place:
- 60% tariff on Chinses goods
- 60% tariffs on Chinese goods and matching retaliatory tariffs on US goods into China
- 60% tariff on Chinese goods and 10% tariff on all other countries
- 60% tariffs on Chinese goods and 10% tariff on all other countries with matching retaliatory tariffs on US goods
- 60% tariff on Chinese goods by the US and 25% tariffs on Chinese goods by the EU
- 60% tariff on Chinese goods by the US and 25% tariffs on Chinese goods by the EU, with matching retaliatory tariffs on US and EU goods into China
The results of these economic models “unequivocally leads to additional losses for the United States.” They conclude that “while China and other US trade partners may experience some losses, the United States would bear most of the global efficiency cost, with potential economic losses surpassing $910 billion if all countries retaliate. Interestingly, many of the US's trading partners, including the EU, South Korea, and other OECD countries, stand to benefit from trade diversion as US goods become less competitive globally.”
Specifics for China, the EU, and other countries can be found below:
Specifically, with a 60% tariff on China, US losses grow to $560.7 billion; and, if China retaliates, US losses are $665.4 billion. If the United States were to impose the 60% tariff on China and a 10% tariff on everyone else, US losses are $511.0 billion; and, if everyone retaliates in kind, US losses grow to a shocking $911.8 billion.
China also suffers across all scenarios, though the losses are greatest if the EU cooperates with the U.S. in levying tariffs. China loses $70.6 billion under the 60% tariff, which is reduced to $50 billion if they retaliate against the U.S. China’s losses shrink to $26.2 billion if the U.S. imposes a 10% tariff on other countries. If all countries issue matching retaliatory tariffs against the U.S., China will gain $38.2 billion.
[A] global trade war between the United States and the rest of the world creates significant opportunities for China in terms of new export opportunities in Europe and less expensive non-US imports.
The EU economy would gain from a U.S.-China retaliatory tariff scheme, since the EU would have greater access to lower primes imports from China and receive preferential treatment in both U.S. and Chinese markets. The EU would benefit the most if the U.S. levies 60% tariffs against China and 10% on all other countries, to the tune of $234.6 billion.
In that scenario, the United States imposes tariffs against China and all other countries, and everyone retaliates in kind against the United States, which is the closest scenario to a US-led global trade war. EU importers benefit from lower prices and EU exporters benefit from greater preferential market access. ...
Other countries such as Canada, Mexico, South Korea, and the rest of the world mostly experience net gains from a US-China trade war. Canada and Mexico, however, experience losses when the United States imposes 10% tariffs on all other countries and they retaliate in kind, reflecting the tightly knitted supply chains across North America. Specifically, Canada and Mexico experience a loss when the United States imposes tariffs on China and all other countries. When other countries retaliate, Mexico goes back to a net gain while Canada continues at a loss. This is attributed to the fact that, although both Mexico and Canada have strong ties to US markets, Canada’s trade with the United States is biased toward increasing-returns-to-scale sectors. In this regard, shrinking trade between the United States and Canada implies a greater cost for Canada. South Korea and other OECD countries gain from the US-China trade war scenarios—South Korea’s net gains reach $48.9 billion.