The United States will have most to lose if it starts a trade war with other countries, while China would be better off after retaliating, research from the European Central Bank shows.
The study simulated a ten percent US tariff on all imports and an equivalent retaliation from other countries.
“Estimation results suggest that the United States’ net export position would deteriorate substantially,” the ECB said, adding “In this model, US firms also invest less and hire fewer workers, which amplifies the negative effect.”
Under that scenario, China would more than compensate for the loss by selling its products to other markets. Its economy would grow slightly faster in the first year, according to the ECB.
The report said that if the US was importing fewer goods from China then that would be offset by increased Chinese trade with other countries, where the nation’s exporters could gain market share at the expense of more costly US exports.
“Qualitatively the results are unambiguous: an economy imposing a tariff which prompts retaliation by other countries is clearly worse off,” said ECB economists Allan Gloe Dizioli and Bjoern van Roye. “Its living standards fall and jobs are lost.”
The research has also suggested that global trade could fall by up to three percent relative to the baseline.
So far, Washington has imposed tariffs on $200 billion of Chinese goods and Beijing retaliated with tariffs on $60 billion of US goods. US President Donald Trump has also placed tariffs on steel and aluminum from Europe and threatened 25 percent duties on European cars.