A Quantitative Analysis of the US–China Trade Tension

Abstract How would an escalation of trade tensions between the world's two largest economies reshape global trade patterns and welfare? This study quantified the global effects of potential tariff increases under the second Trump administration using a quantitative general equilibrium model that captured input–output trade linkages. A simulation of a 30 percent increase in US tariffs on Chinese imports indicated that China's exports to the US would fall by 59.1 percent for intermediate goods and 52.7 percent for final goods, with significant diversion toward Mexico and Canada. At the same time, US imports would shift toward Association of Southeast Asian Nations countries, South Korea, and a few other economies. Certain third countries would experience modest welfare improvements but broader tariff escalation scenarios would result in welfare losses for all economies. These findings underscore the critical importance of maintaining open trade polices and stable international trade relations for global economic welfare. Dialogue and cooperation between the US and China are essential to navigate trade complexities and foster a more resilient and prosperous global economy.