Understanding the China–US trade war: causes, economic impact, and the worst-case scenario

Abstract

This paper studies the current trade war between China and the US from a historical standpoint. By comparing the ongoing trade war with similar trade conflicts in history, we reveal three major causes, with varying degrees of importance, from both economic and political perspectives. The trade war can principally be attributed to trade imbalances, the US midterm elections and rivalry over global economic dominance. As the fundamental conflicts between China and the US cannot be easily resolved, we hold a pessimistic view on the complete settlement of the trade war. In this paper, we perform a scenario analysis, which shows that in the worst-case scenario, China will suffer a 1.1% decrease in employment and a 1% GDP loss, which are not negligible, but manageable for China.