While officials in the Trump administration have suggested that China will be forced to strike a trade deal before long due to its “weak” economy, signs pointing to a new normal of protectionist policies are prompting economists to look at long-term impacts.
In a recent research note from Barclays, the investment firm revised expectations for how US-China trade tensions will play out in light of the new US$200 billion round of tariffs and US$60 billion in retaliatory move by China.
The new baseline scenario assumes that the situation will get worse before it gets better and that the Trump administration’s tariff policies will lead to lower trade volumes and a permanent loss of income.
While the overall impact on the economy may be relatively modest, the losses to consumers will likely be several times larger than costs to the broader economy.
“We estimate plausible losses to US consumers at about 0.6% of GDP, only some of which is transferred to the government and corporate sector in the form of tariff revenues and profitability,” according to the research.
The trade war could also put a dent in US job growth numbers.
“Protectionism may also be associated with lower employment, as job gains in protected industries are offset by losses elsewhere. A 0.2% decline in US GDP equates to about 250k jobs, and we estimate that a 0.4% drop in GDP in China could yield similar losses in urban employment,” the economists wrote.