On April 3rd 2018, the United States of America announced 25% tariffs on goods imported from China, which applied to approximately $46 billion (USD) of trade, and China retaliated by placing tariffs of equal value on imports coming from the United States. As the two biggest economies in the world, China and the U.S. comprise more than 40% of global trade, and their international trade policies have a significant influence on the global economy.
This study examines the possible consequence of the U.S.-China trade war at the aggregate level by applying an Armington type of static computable general equilibrium model. Simulation results show that both the U.S. and China experience a welfare loss, and the magnitude of loss in China is larger than that of the U.S.. If China retaliates, the U.S. is expected to gain in the manufacturing sector, and China
may suffer from a more significant loss in welfare.