Trade Wars: Impact and Consequences

Running head: TRADE WARS
Trade Wars
Name:
Institution:
Date:

TRADE WARS
Executive Summary
The US- China trade war has escalated into a full brown trade war. The two countries
have escalates their trade wars to a 25% tariff on all the goods traded between China and US.
The economic pain worsens significantly for everyone globally if the protectionist measure
imposed escalate into a trade war. This report focuses on the impact or and the consequences
into limiting actions that have occurred. It shows what is planned in the pre-determined trade
wars between the two countries and the most serious reason is the trade war spread in the
wider world.
The global and domestic economies would be damaged if the US-China trade war escalated
into a full disagreement as has been found by KPMG report on new economic modelling.
There are no winners in the trade wars. The KPMG study models three scenarios which
include the
 Limited escalation with no contagion;
 Full escalation with no contagion.
 Full escalation and full contagion; this will be an all-out trade war, where other
countries joined in and have raised the tariffs by 15% or more. This is as witnessed in
the trade war between the US/ China and US/ the rest of the world regarding
aluminum and steel.
Introduction
A number of countries have introduced the protectionist policies and measures such as
the 15% tariffs on imports which is very significant. With this protectionist measures, the
world economy would shrink or contract by more than 3%. For an average worker in the

TRADE WARS
world, real wages per week would be pushed down by $16 while more than 60,000 jobs are
lost (Balistreri, & Hillberry, 2017, April). The Australian national income would be cut by
more than half a million trillion in ten years due to the trade wars. The involvement of trade
wars by other countries would significantly reduce the world’s trade value. The KPMG report
shows that apart from the US winning in the trade war, it would experience a recession and a
GDP loss of 4.6% in 5 years. China would however face a decline in the rate of economic
growth to just 4% and thereafter decline by more than 5% indicating Chinas worst economic
growth in over three decades. It would however not fall into recession (Bichler, & Nitzan,
2018).
The KPMG Australia by contrast modelling finds a situation where the china-US trade
wars were confined to only these two countries and were restricted to the current measures
announced. The negative impact on the global economy would be held below the -0.5% on
the global scale GDP. The Australian GDP will be reduced by 0.3% over the last 5 years.
This will be a loss of $36 bn. Japan and the European Union will be less affected than
Australia. Chinas cumulative loss over 5 years where there are no trade war would be 5.3%.
In a trade disagreement between US-China, there would be trade war that would escalate to a
25% goods that have been traded between China and US (Carballo et al, 2018).. Both the US
and China would end up with a GDP of 1 % or lower with China faring worse over a period
of time. The GDP of Australia would be cut by 0.5% annually over the next 5 years. The
KPMG Australia modelling report suggest that no country would out rightly win in the trade
wars and most of the countries globally would lose (Collie, 2019). Even in the event of a
trade war that is full brown between the two economic giants, it would be best for other
countries to stay away from the war. Australian policy makers and law makers from other
countries globally would be well advised to stay away from political pressure to increase
tariffs or impose tariffs on the goods that are imported from China and the US when they are