Trade War and Trade Policy Uncertainty in a Global Macro Model

Import tariff announcements by the United States and the ensuing trade war have generated both academic and political interest in their global economic consequences. In this paper, we use a global macroeconomic model to analyze the global economic effects of the trade war under a particular scenario. In addition to the direct effects of the import tariffs, we also account for the indirect economic effects of the increased trade policy uncertainty. We find that a trade war triggered by U.S.-initiated import tariffs could decrease global output by approximately 0.5 percent. However, the negative economic effects seem larger for the euro area and are even more pronounced for China. In contrast, the global effects on inflation are estimated to be relatively modest.