Sectoral Impacts of Trade Wars

In recent years, we have witnessed rising trade protectionism with broad ranges of tariffs imposed on intermediate products. In this article, we develop an accounting framework to evaluate the sectoral impacts of the current U.S.-China trade war. We find that U.S. final demand and intermediate demand for goods produced by China decline significantly, with the largest losses occurring in the Electronic and ICT (information and communications technology) industry and the Electrical industry. We obtain sizable deadweight losses for the United States, particularly in the Electronic and ICT; Electrical; and Furniture industries. We also find that, with a leakage rate of 20 percent, total losses to U.S. consumers and importers are $3.3 billion, about 0.05 percent of gross U.S. output, whereas the full leakage losses are $10.7 billion, or 0.16 percent of gross U.S. output, which is twice as much as the annual welfare gains from the North America Free Trade Agreement.