With the recent rise of populism and authoritarian politics multilateral agreements have been resisted and there are increasing trade disputes, the US-China conflict being a case in point. This paper uses a calibrated global macro model to assess the potential economic consequences of this conflict under explicit assumptions about monetary and fiscal policy. US unilateral protection emerges as “beggar thy neighbor” policy, by most if new tariff revenue affords capital tax relief. China’s proportional losses are large, little mitigated by its retaliation, which nonetheless constrains US net gains. Avoiding leakage by protecting against all sources causes large losses in third regions trading with China and the US.
|Name||Economics Discussion Papers|