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: In the short run, higher import tariffs cause an increase in the price of imported goods for both firms and households. In the context of a global trade war, the impact on global GDP depends on the substitutability between imported and domestic goods, on the response of exporting firms facing tariffs and on monetary policy reactions. According to our baseline simulation, global GDP would fall by 0.7% in the first year and up to 1.1% at the end of the third year following the introduction of tariffs. The impact on inflation is small as the direct inflationary impact of higher tariffs is mitigated by monetary policy responses and by the fall in aggregate demand (domestic and external) which puts downward pressure on prices. The global increase in inflation would be moderate and short-lived (0.1 percentage points globally after one year, 0.04 percentage points after three years). Our simulation enters in a broader policy debate evaluating the impact of the introduction of tariffs. Focusing on a bilateral trade war between the US and its trade partners, and using similar models, the ECB (2018) and IMF (2018) find, not surprisingly, a lower impact on global GDP. The indirect channels amplifying the effects of a global trade war
In addition to the effects due to the increase in tariffs, a trade war can also impact economies through different indirect channels. We consider three of them: Indirect effect 1: