New research from the International Monetary Fund (IMF) finds that if the U.S. and China raise tariffs to 25 percent on all goods traded between the two countries, the U.S. economy would lose between 0.3 and 0.6 percent in growth, the Chinese economy would lose between 0.5 and 1.5 percent, and global growth would slow by 0.1 and 0.2 percent.

The study – based on analysis across 63 countries over 20 years and across 34 sectors – assumed tariffs escalated to 25 percent on the roughly $540 billion in Chinese goods imported annually to the U.S. with retaliatory tariffs arriving back from China on $120 billion of U.S. exports.

The study concluded that erecting trade barriers against one country such as China typically results in the U.S. importing more from other nations and has no impact on bilateral trade deficits.

The U.S. and China would see “sizable” losses in manufacturing as capacity moves toward Mexico, Canada, and East Asia if tariffs were hiked to 25 percent on all goods flowing between the two countries, the IMF said in its April World Economic Outlook. The electronics and other manufacturing sectors in China would be particularly hard-hit while the U.S. agricultural sector would see a significant contraction. China would be impacted to a greater degree because China’s exports to the U.S. are a larger share of its economy.

Mexico, Canada, Europe and other parts of Asia would benefit somewhat in the short run as trade is diverted through their economies to avoid the tariffs but eventually most countries would “likely to be worse off” because of increasing macroeconomic uncertainty.”

The rise of vast global supply chains in recent decades means some countries – including China, Germany and South Korea – stand to suffer much more from tariffs than the U.S. which is relatively less integrated into these chains. Since trade runs across borders more than ever before, an increase in tariffs “would have a larger negative effect today than in 1995,” the IMF said. Tariff hikes have “become more negative for all countries, but to varying degrees.”

The study found that rather than tariffs, the largest driver of the U.S. trade deficit from 1995 to 2015 was macroeconomic factors such as the fact that the U.S. was spending more than it was producing.

The IMF predicts the U.S. trade deficit will widen even further because of “recent fiscal stimulus” from Trump’s tax cuts and the uptick in government spending. Last year was the largest U.S. trade deficit for goods in the nation’s history.

Trump has repeatedly said he is using tariffs as a negotiating tool to get China to agree to stop stealing U.S. intellectual property and stop subsidizing so many industries. Chinese subsidies likely played a role in the U.S.-China trade deficit as well, the IMF found.

Since the trade dispute started last July, the U.S. has implemented tariffs of 25 percent on $50 billion worth of Chinese goods and levies of 10 percent on another $200 billion. China has retaliated with duties on U.S. products, including key agricultural crops.

The $200 billion tranche included a number of consumer goods in the active lifestyle industry, including backpacks, sports bags, leather ski gloves, camp stoves, camp chairs, bikes and bicycle parts. Those tariffs were supposed to jump from 10 percent to 25 percent in March but the Trump administration agreed to extend the 90-day trade truce reached in November at the G-20 Summit in Argentina.

Another round of $267 billion in tariffs that would likely include apparel and footwear has also been put on hold.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin resumed talks in Washington, D.C. with Chinese vice premier, Liu He, on Wednesday, just days after the two sides reported progress in talks the prior week in Beijing.

The IMF’s report arrived amid other reports highlighting trade concerns or risks.

A study that came out Wednesday showed that nearly three-fourths of CFOs said they expect a deceleration of economic activity by the end of 2020. Only 15 percent anticipated an outright recession.

“Those expecting a downturn were most likely to cite U.S. trade policy, business and credit cycles, and the impacts of slowing growth in China and Europe on the U.S. economy,” Deloitte said in its report released Wednesday. Of the 151 respondents, 58 CFOs said they were most worried by the current U.S. trade policy, in addition to tariffs. Following that were 31 CFOs, who said they were most worried about an economic risk and slowdown.

In a paper that came out in early March, “The Impact of the 2018 Trade War on U.S. Prices and Welfare,” economists Mary Amiti of the Federal Reserve Bank of New York, Stephen J. Redding of Princeton University and David Weinstein of Columbia University found that the overall the Trump administration’s tariff war against its trading partners, particularly China, cost American companies and consumers $4.4 billion a month last year.

Their estimates reveal $3 billion per month in added tax costs, and $1.4 billion in “deadweight losses,” or income losses from foregone imports that could have been purchased at lower prices before the tariffs were imposed.

The tit-for-tat exchange of duties had plunged the U.S. into its “first episode of large-scale competitive tariff protection since the Great Depression of the 1930s.” according to the paper.

They said the US economy had experienced “substantial increases in the prices of intermediates and final goods, large changes to its supply chain network, reductions in availability of imported varieties, and complete pass-through of the tariffs into domestic prices of imported goods”.

“Our results imply that the tariff revenue the U.S. is now collecting is insufficient to compensate the losses being born by the consumers of imports. We also see similar patterns for foreign countries who have retaliated against the U.S., which indicates that the trade war reduces real income for the global economy as well,” the researchers wrote, according to a statement. “Our estimates, while concerning, omit other potentially large costs, as the new heightened uncertainty about trade policy could itself discourage firms from making the long-term investments that are central to international trade in global value chains.”

Analysis by the market research firm Trade Partnership Worldwide and commissioned by Tariffs Hurt the Heartland, an ad-hoc group of trade associations seeking to roll back the levies, found that U.S. exports fell in 2018 due to retaliatory tariffs set by China and other countries. Overall, exports declined by $15.7 billion, or 14 percent, last year, but exports of products not subject to retaliation increased $119 billion, about 10 percent, indicating that companies could still sell abroad if the field was level.

Overall, the study showed that Americans paid $12.8 billion in additional tariffs last year due to tariff actions taken by the administration. In December, exports targeted by retaliations fell by 40 percent following two previous months with declines of 37 percent each in October and November.

“This data shows the trade war has done lasting damage to the American economy,” said Tariffs Hurt the Heartland spokesman and former Rep. Charles Boustany. “Regardless of what comes of negotiations, punishing ourselves by taxing our own businesses and consumers with tariffs has been a clear mistake.”

Image courtesy Maersk