Global Trade at a Crossroads: A U.S.-China Trade War is a Lose-Lose Situation

S&P Global Ratings
Written By: Boris S Glass, Satyam Panday, Vishrut Rana
S&P Global Ratings
Written By: Boris S Glass, Satyam Panday, Vishrut Rana

The direct economic effects of the U.S.-China tariff dispute have so far been limited. That may be about to change as the countries escalate their rhetoric--and their actions--in what could soon be a full-blown trade war.

An escalation of the current U.S-China trade dispute to a trade war that adds a 25% tariff on all nonfuel goods between the two largest economies could shave roughly one percentage point off U.S. GDP by 2021; for China, the loss to GDP would be around six-tenths of one percent, said an article titled, " Global Trade At A Crossroads: It's Hard To See Any Winners In A U.S.-China Trade War."

"Attempts to help those hurt by globalization via higher tariffs or other forms of protectionism, even if well meaning, will raise prices and hurt all consumers, especially poor and middle-class families," said U.S. Senior Economist Satyam Panday. "Not to mention damage the competitiveness of companies that import raw materials and components from other countries and folks who work in export industries."

Seeing trade deficits as invariably bad is off base; in fact, a trade deficit associated with larger volumes of both imports and exports could be more effective in raising living standards than a trade surplus in which trade volumes are low.

"The U.S. focus on trade imbalances with China detracts from the resolution of pressing multilateral issues," said Mr. Panday, "including market access and investment restrictions in China, which would be more beneficial for all sides."