The US-China Trade Dispute: A Macro Perspective

Abstract

The recent rise of populism and authoritarian politics has seen a turn from multilateralism and toward international disputes like that between the US and China. This paper uses a calibrated global macro model to assess the potential economic consequences of this conflict under explicit assumptions about monetary and fiscal policy. US unilateral protection emerges as “beggar thy neighbor” policy, the more so if new tariff revenue affords capital tax relief. China’s proportional losses are comparatively large and little mitigated by retaliation, which nonetheless constrains US net gains. Avoiding leakage by protecting against all sources causes substantial losses in third regions trading with China and the US.

Keywords: trade disputes, China, macroeconomic policy, general equilibrium analysis, numerical theory

JEL Classification: F13, F41, F47