[The paper highlighted this week is perhaps the least intelligible work I’ve reviewed, at least as far as the general reader is concerned. I won’t therefore express a view on the methodology and have to assume the conclusions are, at least in a general sense, valid.]
In the paper highlighted this week Mario Arturo Ruiz Estrada from the Social Security Research Centre (SSRC) at the University of Malaya (et.al.) has tried to simulate the impact of a protracted trade war i.e. for the next five years between the U.S. and China at different tariff rates.
Before you dismiss the scenario as unrealistic it’s worth being reminded many thought war between the UK and Germany a remote possibility before 1914 because of the trade interdependence between the two.
The paper compliments work highlighted last week that revealed China is already coming off worse from the hostility. The work this week shows clearly how, especially at higher tariff rates, China is progressively hurt; and to a significantly greater degree than the U.S. This analysis, or variations of it, will be on policy maker’s desks in both China and the U.S. and perhaps explains the most recent pivot in U.S. negotiating stance?
The optimist in me wants to believe an understanding of how corrosive to China’s development a protracted dispute would be will lead to a more swift Chinese compromise on outstanding issues? However, the optimist in me probably wouldn’t have seen WWI coming…
If you’d like to have a go at understanding what a “Foreign Trade War Smash Wave Effect Simulator” is and how to construct one the paper in full is available via the following link The Effects of Trump Trade Policy on China.
Happy Sunday