"G2 New Cold War Worst Escalation Brings Loss to China, Gain to US"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Cho Hyun-ui] If the new Cold War between the U.S. and China escalates to the worst-case scenario, China could suffer a loss of about 6% of its Gross Domestic Product (GDP), while the U.S. could gain around 7%, according to projections. This assumes a near-complete severance of trade between the two blocs centered around these countries.

Bloomberg Economics (BE), an economic research institute under Bloomberg News, released on the 15th (local time) the results of a forecast using a quantitative model related to international trade, projecting the gains and losses for both countries under various new Cold War scenarios.

If the U.S. and China impose a 50% tariff on all goods from the other country, China is expected to lose about 2% of its GDP due to decreased exports.

On the other hand, the U.S. is projected to gain about 0.4% of its GDP from the reshoring of manufacturing facilities. Mexico is also expected to gain about 1% of its GDP as production facilities relocate from China to regions adjacent to the U.S.

If bilateral trade between the U.S. and China is completely cut off, China's GDP loss would increase to 2.4%, while the gains for the U.S., Canada, and Mexico are expected to rise.

Going further, if all countries choose one bloc and impose 100% tariffs on goods from the opposing bloc, China is projected to lose 6% of its GDP, while the U.S. could gain about 7% of its GDP.

BE based its assumptions on 2019 statistics from the International Monetary Fund (IMF), presuming that countries side with the bloc with which they have a larger trade share between the U.S. and China.

In this scenario, countries in the China bloc such as Russia and Brazil would suffer losses, while countries in the U.S. bloc such as Canada, Mexico, and India would benefit. Global trade is estimated to decrease by about 40%.

South Korea and Japan would see slight gains if only bilateral trade between the U.S. and China is severed, but would suffer losses if trade between the U.S. and China blocs is also affected.

The U.S. and China engaged in a trade war during former U.S. President Donald Trump's administration, imposing retaliatory tariffs on each other's goods, before signing a Phase One trade agreement last January.

This content was produced with the assistance of AI translation services.