Exploring the impacts of Sino–US trade disruptions with a multi-regional CGE model

Abstract

With the aim to explore the boundary effects of the Sino–US trade war, this study considers a multi-region CGE model to set up six trade disruption scenarios based on the severity of trade friction, and empirically examines the gains and losses for China and the US, as well as potential impacts on other countries. The results show that: (1) Sino–US trade disruptions will likely result in a lose-lose situation; (2) compared to agriculture, China’s restriction on manufacturing imports may generate a greater negative impact on the US; (3) a trade diversion pattern is observed, indicating shrinking of bilateral trades between the two countries and increasing exports toward third trading partners; (4) although the US trade sanctions will substantially reduce the trade deficit with China, the trade deficits with other countries will likely increase. By empirically quantifying the boundary effects of Sino–US trade disruptions, this study sheds light on the negative effects of a trade war for both countries, as compared to proper negotiations.