ECB: Trade war may boost China while hurting US growth


A global tariff tit-for-tat could boost China’s $12 trillion economy and hurt the US expansion, according to European Central Bank research.
The conclusions challenge President Donald Trump’s assertions that trade wars are “good, and easy to win.” They also counter the argument that China has more to lose from a spat with its main trading partner because of its greater dependence on exports.
The ECB assumed the US imposes 10 percent tariffs on all imports and its trading partners respond in kind. Under that scenario, China would more than compensate for the loss by selling its products to other markets. The hit to US investment and trade would lower activity there by 2 percent in the first year after levies start, though the effects would fade over time as the US adjusts its own production.
“Qualitatively the results are unambiguous: an economy imposing a tariff which prompts retaliation by other countries is clearly worse off,” ECB economists Allan Gloe Dizioli and Bjoern van Roye wrote in the report. “Its living standards fall and jobs are lost.”
Protectionist measures taken so far will have only a marginal effect on global economic activity as the affected products represent only a small part of world trade, according to the ECB.
The world’s two largest economies have already slapped tariffs on each other’s goods, and the Chinese government called off planned talks with US officials, risking a prolonged conflict that could disrupt the global supply chains.
Tariffs imposed so far will cost 0.5 percentage point a year on China’s growth and up to 1.5 percentage point if more levies are imposed, Bloomberg Economics estimates.

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