Impact assessment of Trump tariffs and China retaliation
trade-wars
Modelling the long-run hit from Trump-era tariffs and Chinese retaliation: both economies lose roughly 1.5% of GDP per capita, but the US gets inflation and China gets deflation.
Simulating a package of 10% baseline tariffs, 25% sectoral tariffs on autos and steel, and a 125% tariff on Chinese imports, the analysis projects a roughly 1.5% decline in real GDP per capita for both the US and China — but through opposite channels: about 6% higher prices in the US, and deflationary pressure in China as export capacity looks for other outlets. Neighbouring economies are not spared: Canada and Mexico see GDP declines of 1.4–2%, while other developed economies see smaller losses under 1% via reduced global demand spillovers.
Originally published on Substack, April 11, 2025.