Estimating the Impact of the US-China Trade War

Comparison of estimates from DIR and international organizations


July 25, 2018

  • Shunsuke Kobayashi
  • Yota Hirono


◆Using the DIR macro model, estimated impact on the real economy of additional tariff measures scheduled to be implemented or now being considered by the US and China is expected to be limited, with China at -0.14%, US -0.15%, and Japan at -0.01%.

◆On the other hand, the IMF, as well as other international organizations, has also issued an estimate, which sees a -2% decline in the global economy if the cost of global trade rises by 10%. The deviation between the two estimates is due to the difference in assumptions. The growth rate in the cost of global trade associated with US-China tariff measures is more likely to be no more than 0.26%. Hence, using the IMF estimate, the impact on global GDP would be -0.05%. Even when we include additional tariffs on steel and aluminum, as well as retaliatory tariffs, the impact on global GDP would still be only -0.07%.

◆In conclusion, the main risk to Japan’s economy is not the US-China trade war. For Japan, what comes later is a life or death question – whether or not additional tariffs will be levied on automobiles. Additional tariffs of 20% would cause global GDP to decline by -0.1%, but the cost to Japanese corporations due to tariffs on automobiles and automobile parts would grow by more than 1.7 tril yen. Hence the upcoming trade negotiations on automobiles will be Japan’s moment of truth.

Daiwa Institute of Research Ltd. reserves all copyrights of this content.
Copyright permission of Daiwa Institute of Research Ltd. is required in case of any reprint, translation, adaptation or abridgment under the copyright law. It is illegal to reprint, translate, adapt, or abridge this material without the permission of Daiwa Institute of Research Ltd., and to quote this material represents a failure to abide by this act. Legal action may be taken for any copyright infringements. The organization name and title of the author described above are as of today.