The ECB’s simulation shows the U.S. will have bear the full brunt of the trade war, if Trump were to engage in it with more than a one country. In March Trump had said, trade wars were “… an easy win”.
On Wednesday, as per the results of a simulation conducted by the European Central Bank (ECB), the United States would have more to lose if it started a trade war with other countries; also, China would be better off retaliating than play a defensive role.
In March 2018, U.S. President Donald Trump had said trade wars were “good, and easy to win” as he started a dispute which has, so far, culminated in the imposing of tit-for-tat tariffs by both sides.
The ECB study simulates a 10% U.S. tariff on all imports and an equivalent retaliation from other countries. The results show the U.S. would have to bear the full brunt of diminished trade, reduced investor confidence and damage to consumers.
“Estimation results suggest that the United States’ net export position would deteriorate substantially,” said the ECB in a statement in the context of the study. “In this model, U.S. firms also invest less and hire fewer workers, which amplifies the negative effect.”
As per the ECB’s estimates, the growth of the U.S. economy would shrink by more than 2% points.
The International Monetary Fund currently expects the U.S. economy to expand by 2.9% in 2018 and by 2.7% in 2019.
The study shows, China would gain the upper hand since it could export more to countries where U.S. goods are subject to tariffs, although that slight gain would be temporary and partly offset by a negative effect on confidence.
The study also showed how this would impact global trade – it would fall by 3% relative to the baseline.
The ECB model is purely theoretical; it does not replicate actual trade conditions.