Title: The macroeconomic implications of a global trade war | VOX, CEPR Policy Portal
Headings: The macroeconomic implications of a global trade war
The macroeconomic implications of a global trade war
Short-term macroeconomic effects of higher trade tariffs
The indirect channels amplifying the effects of a global trade war
The macroeconomic effects of a trade war in the light of long-term trade models
Conclusions
References
Endnotes

Content: The macroeconomic implications of a global trade war | VOX, CEPR Policy Portal
The macroeconomic implications of a global trade war
Antoine Berthou, Caroline Jardet, Daniele Siena, Urszula Szczerbowicz 08 February 2019
Escalating tensions between the US and its trading partners have made a global trade war more likely. In addition to the direct effect due to the increase in tariffs, a trade war may also affect GDP via indirect channels, such as a drop in productivity due to uncertainty and changes in the production environment. Using a multi-country model, this column shows that a global and generalised 10 percentage point increase in tariffs could reduce the level of global GDP by almost 2.0% on impact and up to 3.0% after two years, when all the additional indirect channels materialise. a
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Since early 2018, the US administration has announced and implemented a series of protectionist measures targeting specific sectors (such as steel and aluminium) or countries (such as China). While these new tariffs initially targeted a limited number of products and a small proportion of US trade, the coverage in terms of goods was gradually increased as the trade conflict between the US and China intensified. Following China’s decision to retaliate against US tariffs, the White House announced additional tariffs in the summer of 2018 covering $200 billion of imports from China. 1 These additional measures were implemented in September 2018, but ultimately, all US imports from China could be potentially targeted by new tariffs. Protectionist measures could also be extended by the US administration to imports of automobiles and auto parts, raising the risk of a geographical spread of the trade war, as the most affected regions (e.g. the EU) could also retaliate. The global trading system is now under exceptional pressure. The current situation has been provocatively described as “the largest trade war in economic history” by China's Ministry of Commerce (Wall Street Journal 2018).