Impact of Trade Wars on the Global Economy and on the Macroeconomic and Sectoral Indicators of the USA and China

The trade war initiated by the United States against some of its trading partners from 2017 to 2019 has become a crucial factor in the current transformation of the global economy. The main confrontation unfolded between the US and China, as the imposition of high tariff barriers on a wide range of goods in bilateral trade led to the contraction of trade flows. Technological rivalry between the two countries also fed the trade war that has now become a central aspect of the ongoing US-China economic conflict. The article examines the content and scope of the US trade war restrictions and the retaliation against them by other countries; and it provides an overview of specific empirical studies that trace out the consequences of these measures for the global economy and individual countries. The authors use a general equilibrium model to simulate the effects of the trade war at both the macroeconomic and sectoral levels. The primary markets analyzed are those of the US and China because their economies are the most deeply involved in the conflict. The modeling indicates that the tariff restrictions on bilateral trade have adverse effects on the GDP of both the US and China, and the majority of sectoral-level indicators are also negative. The positive effects on certain industrial sectors are due to less dependency on imports or exports subject to increased duties or to options for quickly redirecting trade flows to alternative suppliers and customers. The resulting partial reorientation of trade has had positive effects on other countries that are trading partners with the US and China. In the long term, the unwavering policy of technological decoupling between the US and Chinese economies is the most significant factor in the future course of their interactions. Both countries are trying to exclude the most sensitive technologies from economic cooperation and tend to impose non-tariff measures such as export controls more frequently than tariffs.

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