Billion-Dollar US Levies on Chinese Ships Risk ‘Trade Apocalypse’

The United States is on the brink of a potential trade war with China, as former President Trump has proposed a 60% tariff on Chinese imports. This move, if implemented, could have far-reaching implications for the global supply chain and trade networks, particularly for industries heavily reliant on Chinese manufacturing. The proposed tariff is part of a broader plan to raise tariffs across the board, with a 10% tariff on all goods imports. The potential macroeconomic implications of these tariffs are significant, and the risks are high.

The proposed 60% tariff on Chinese imports would raise $2.6 trillion over the next decade—0.7% of GDP—if other countries did not retaliate against the US. However, if targeted countries retaliate, as is likely, tariff revenue falls by 12-26% depending on the scenario. This indicates that the tariff would not only affect the US economy but also trigger retaliatory measures from other countries, potentially disrupting global trade networks.

The level of consumer prices would rise by 1.4 to 5.1% before substitution, which is the equivalent of $1,900 to $7,600 per household in 2023 dollars. This cost is a significant portion of the first four years of pandemic inflation, suggesting that the tariff would lead to increased costs for consumers and businesses. Industries heavily reliant on Chinese manufacturing, such as electronics, textiles, and automotive, would face higher input costs, which could be passed on to consumers in the form of higher prices.

Partial dynamic analysis suggests the tariff proposals analyzed here could lower the level of US real GDP by 0.5% to 1.4%, which would shave roughly $400 billion to $1 trillion off of revenue estimates. This indicates that the tariff would have a negative impact on the US economy, potentially leading to a contraction in real GDP. This contraction could further disrupt global supply chains, as US demand for goods and services would decrease, affecting industries that rely on US imports and exports.

Effective tariff rates would be 6-27 p.p. higher after substitution, bringing average tariffs to at least World War II levels. This suggests that the tariff would have a significant impact on the cost of goods and services, potentially leading to a shift in global trade patterns. Industries that rely on Chinese manufacturing would need to find alternative suppliers or increase domestic production, which could lead to disruptions in the global supply chain.



In summary, the proposed 60% tariff on Chinese imports would have significant implications for the global supply chain and trade networks, particularly for industries heavily reliant on Chinese manufacturing. The tariff would lead to increased costs for consumers and businesses, potentially disrupting global trade networks and leading to a contraction in the US economy. Industries that rely on Chinese manufacturing would need to find alternative suppliers or increase domestic production, which could lead to disruptions in the global supply chain.

The potential macroeconomic implications of a 10% tariff on all goods imports are also significant. According to the analysis by The Budget Lab (TBL), such a tariff could raise between $1.2 to $4.4 trillion over 10 years under conventional assumptions, or 0.3 to 1.2% of average GDP. However, these effects are sensitive to key assumptions about the behavior of both US and foreign consumers, businesses, and governments.

In the short term, the tariff would initially raise the level of consumer prices by 1.2 to 5.1%. This price increase represents 7 to 31 months of normal inflation under the Federal Reserve’s target, and between a tenth and a third of the price level increase experienced over 2020-2023. The loss in average disposable income from these price increases would be the equivalent of $1,900 to $7,600 per household in 2023 dollars. This cost is significant, as it is the equivalent of $1,900 to $7,600 per household in 2023 dollars, which is a substantial financial burden for many American households.

In the medium term, real US GDP is projected to contract by between -0.5 to -1.4%. This contraction would shave roughly $400 billion to $1 trillion off of revenue estimates. The dynamic effects on the size of the US economy from the various tariff proposals imply that tariff revenue would be smaller by an additional $400 billion to $1 trillion over the budget window. This contraction in GDP would have broader implications for the economy, including potential job losses and reduced economic activity.

Effective tariff rates are 13 to 52 percentage points higher before substitution. Even after US consumers and businesses substitute towards domestic or lower-tariffed-imported options, effective tariff rates are 6 to 27 percentage points higher, raising the overall effective tariff rate to levels at least unseen since World War II and possibly since 1899. This increase in effective tariff rates would have long-term implications for the US economy, potentially leading to reduced competitiveness and higher costs for businesses and consumers.



In summary, a 10% tariff on all goods imports would have significant short-term and long-term macroeconomic implications for the US economy. In the short term, it would lead to higher consumer prices and reduced disposable income. In the medium term, it would result in a contraction of real US GDP, with potential job losses and reduced economic activity. In the long term, it would raise effective tariff rates to levels unseen since World War II, potentially leading to reduced competitiveness and higher costs for businesses and consumers.