Assessing the Impact of the United States–People’s Republic of China Trade Dispute Using a Multiregional Computable General Equilibrium Model

54 Pages Posted: 26 Jan 2021

See all articles by Elisabetta Gentile

Elisabetta Gentile

Asian Development Bank

Gen Li

National Institute for Environmental Studies, Japan

Mahinthan Mariasingham

Asian Development Bank - Economic Research and Regional Cooperation Department (ERCD)

Date Written: September 30, 2020

Abstract

Since the onset of the ongoing United States (US)–People’s Republic of China (PRC) trade dispute in 2017, stakeholders and experts alike have expressed deep concerns that the tensions would come at a cost for the countries involved and the global economy. In this paper, we endeavor to quantify this cost by using a computable general equilibrium model based on the 2017 Asian Development Bank Multiregional Input-Output Tables. We construct three scenarios: the baseline or business-as-usual (BAU) scenario; scenario 1, based on the bilateral measures implemented as of May 2019; and scenario 2, corresponding to a full-scale tariff war where both countries impose an additional 25% tariff on all bilateral imports. We find that scenario 1 is associated with a contraction of gross domestic product (GDP) with respect to the baseline by 0.17% in the US and 0.36% in the PRC. Employment contracts by 0.24% in the US and 0.55% in the PRC. Similarly, consumption, and investment decrease by 0.14% and 0.45%, respectively in the US, and by 0.20% and 0.64% in the PRC. Scenario 2 is associated with an even larger contraction in trade flows, which leads to larger decreases in GDP, employment, consumption, and investment in both economies. We observe trade diversion to other Asian economies, with Japan, Malaysia, the Republic of Korea, and Viet Nam benefiting the most, but sectoral analysis shows that export-competing sectors to the PRC in other Asian countries stand to benefit from the ongoing trade dispute, whereas sectors that supply to the PRC stand to suffer.

Keywords: computable general equilibrium (CGE) model, input output, Multi-regional Input-Output Tables (MRIOT)

JEL Classification: D57, D58, F13, F17

Suggested Citation

Gentile, Elisabetta and Li, Gen and Mariasingham, Mahinthan, Assessing the Impact of the United States–People’s Republic of China Trade Dispute Using a Multiregional Computable General Equilibrium Model (September 30, 2020). Asian Development Bank Economics Working Paper Series No. 620, Available at SSRN: https://ssrn.com/abstract=3773536 or http://dx.doi.org/10.2139/ssrn.3773536

Elisabetta Gentile (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Gen Li

National Institute for Environmental Studies, Japan ( email )

Tsukuba
Japan

Mahinthan Mariasingham

Asian Development Bank - Economic Research and Regional Cooperation Department (ERCD) ( email )

Philippines

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