This Policy Brief conducts an ex-ante evaluation of Donald Trump’s protectionist proposal, an increase by 10 percentage points of tariffs on all goods from all origins, except Canada and Mexico, combined with 60 percentage points of tariffs on all goods from China. US partners retaliate.
World GDP declines by 0.5%, with sharp contraction in the US (-1.3%) and China (-1.3%), limited negative impact in France and Germany, and significantly positive effects on Canada and Mexico.
Trade between the US and China becomes almost decoupled; US wages fall while Mexican wages rise.
Trade retaliation not only punishes the US, but also allows some countries to reduce their losses in terms of trade and economic activity.
Most US trading partners benefit from a more protectionist US trade policy against China.