Quantifying the effects of a full-grown trade war
Felbermayr and Steininger ran a quantitative analysis of the potential effects of a Sino-American full-blown tariff war, where both parties require an additional 25 percent tax on all imports. They find that:
- US GDP would decline by EUR 9.5 billion and Chinese GDP by EUR 30.4 billion;
- Chinese exports to the United States would fall by a whopping EUR 171.3 billion, while US exports to China would contract by EUR 51.0 billion; and
- Europe may benefit slightly from trade diversion effects, its trade surplus with the United States would become even larger, threatening further transatlantic conflict.
Trump’s trade attack on China − who will have the last laugh?
Authors: Gabriel Felbermayr, Marina Steininger
From: Kiel Institute, Ifo Institute
Are import tariffs the real issue?
President Trump’s tough stance on China remains popular in the United States, not so much due to the bilateral trade deficit or frustration about lost business opportunities, but because of the concern that China is about to outcompete the United States for technological leadership in a number of sectors considered critical for national security (on both sides of the Pacific). The reason Sino-US tensions on FDI and the associated ‘forced transfer of technology’ are so intense is because they are mostly about income distribution between two monopolists. The Chinese authorities hold the key to access to a vast, and quickly growing, market whereas Western companies still have a monopoly on the best technology in many sectors.
This is not a trade war, it is a struggle for technological and geo-strategic dominance
Author: Daniel Gros
The effects on Europe
As the multilateral trade order is getting massively transformed Europe is facing the following challenges:
- European investors are starting to worry that their investments in China may be completely blocked by the US or indirectly affected by the worsened relationship between China and the United States;
- Strengthening its alliance with the US is no longer a viable option as the latter has become an increasingly unreliable partner; and
- Rebalancing toward China, at least partially, cannot be an option either for Europe in the current circumstances due to very limited access to the Chinese market.
Europe in the midst of China-US strategic economic competition: What are our options?
Author: Alicia Garcia Herrero