The U.S. raised tariffs on $200 billion worth of Chinese goods to 25%, and China retaliated by increasing tariffs on $60 billion of American goods to 25%.
Oxford Economics’ U.S. chief economist Gregory Daco estimated that the 25% tariff hike would reduce China’s economic output by 0.8% and lower U.S. GDP by 0.3% in 2020. This would translate to $62 billion in lost output for the U.S. by 2020 and would cost the global economy more than $360 billion.
An “extreme scenario” of a full-blown multilateral trade war would have the U.S. imposing 25% auto tariffs globally and 35% tariffs on all Chinese imports, plus 10% blanket tariffs on goods from Japan, Taiwan and the EU. This scenario would reduce U.S. GDP by 2.1% in 2020 and could push the economy down to a recession the following year. It would also result in 2.5% reduction in China’s GDP, 1.5% contraction in European and Japanese GDP and reduce the global output by 1.7%. The situation could also affect stock prices and private sector confidence and could force central banks to implement substantial interest rate cuts.