The Economic Evaluation of China-US Trade Frictions

Abstract

The United States after President Trump taking office shows a strong intention of trade protectionism. It launched the 301 investigation” on China and threatened to impose extra 25% penalty tariffs on Chinese products. Unwilling to show weakness, China also announced to take retaliatory measures. As two great trade powers in the world, trade conflicts between the United States and China will inevitably strike the existing trade system and drag down the global economic growth. Therefore, it is necessary to analyze economic impacts of trade frictions on both two countries and fluctuation effects on other countries to explore the degree of distortion that caused by trade frictions to the international trade system. What kind of losses will trade sanctions of the United States bring to China and what will be the effect of China’s countermeasures are problems that are highly attended by decision-makers and need to be solved urgently. With a Global Trade Analysis Project （GTAP） and the latest database GTAP 9.0, this paper quantitatively sets six kinds of policy scenarios according to the degree of seriousness of trade frictions, and simulates variations of macro-economic indexes of main countries from perspectives of real GDP, residents’ welfare and import and export trade to discuss the impacts of different trade conflicts on every industry in China. The main conclusions of the paper are: （1） judging from real GDP, residents’ welfare and import and export trade, Sino-US trade friction is a lose-lose situation to both countries while China will suffer more losses; （2） China taking trade countermeasures towards the United States will deteriorate the trade conditions of the United States and cause great decline of its export to China; affected by such influence, residents’ welfare in the United States will become worse and economic growth will be slowed down, which will also bring a second-time damage to China; （3） Sino-US trade frictions may benefit other countries at the cost of their benefits; there may be economic growth and welfare improvement in varying degrees in other countries; （4） trade frictions will bring significant trade transfer effects, that is, direct trade between China and the United States will be reduced greatly while indirect trade between them will be significantly increased; （5） trade sanctions of the United States cannot fundamentally solve the trade imbalance problem of the United States; its trade deficits with other countries will still increase even though these with China will be reduced. The marginal contributions of this paper can be elaborated from three aspects. Firstly, this paper quantitatively evaluates international economic effects of Sino-US trade frictions, calculates specific impacts of different trade sanctions of the United States on China, and estimates implementation effects of different countermeasures of China. Research results are of great significance for China taking proper measures to tackle potential threats of trade frictions. Secondly, this paper analyzes overflow effects of Sino-US trade frictions from the perspective of trade transfer, and estimates potentials of China and the United States for indirect trade through third countries after trade frictions. The findings are helpful for China to strengthen international cooperation so that negative impacts of trade sanctions can be reduced. Thirdly, this paper estimates the impacts of trade frictions on different industries in China, which is helpful for China to find out industries with serious damages as soon as possible and enact effective industrial protection measures.