A CGE Analysis on Trade War

The U.S. has been implementing steep tariffs on imports from around the world, particularly China. This paper aims to analyze the possible impacts of these protectionist policies on the global economy. Running simulations in a CGE framework based on the GTAP model, results show that on a global level, GDP shrinks by 0.2%. Scenarios include trade policies that have already been implemented, as well as those that are still being considered. In the event that all four scenarios occur, U.S. and China’s GDPs drop by 0.8% and 0.7%, respectively, while Japanese GDP is barely affected, with a 0.0% decrease. The U.S. is hit the hardest by the scenario of them imposing tariffs on motor vehicles and parts, whereas U.S.-China trade friction scenarios, including both policies already in effect and currently under consideration, have a significantly negative impact on the Chinese economy.