US to face heavy economic losses if trade war with China continues

SINGAPORE (ICIS)–The US economy is hurting itself if its trade war with China continues in the medium term, possibly shaving a large chunk of its GDP output with attendant massive job losses.

A further escalation of the trade war between the world’s two biggest economies, would cost the US $1.6tr in economic output over the next five years and over a million jobs, according to an Oxford Economics study commissioned by the US-China Business Council (USCBC) dated January 2021.

Unrelenting hostile trade relations will translate to 732,000 fewer US jobs in 2022 and 320,000 fewer jobs in 2025, the study showed.

The US and China had engaged in a tit-for-tat tariff imposition over the course of more than two years, affecting billions of US dollars worth of goods, including petrochemicals, until early 2020, when a phase-one trade agreement was reached.

Oxford Economics, in the study, estimated that the average tariff rate is currently high at around 19%.

“Even a moderate rollback in tariffs could increase economic growth and stimulate employment growth [in the US],” it said.

Assuming a gradual scaling back of tariffs to 12%, an estimated boost to US economic output is $160bn, with additional 145,000 jobs created by 2025, according to the study.

Exports to China in 2019 had supported 1.2m jobs in the US and as of 2018, 197,000 people in the US were directly employed by Chinese multinational firms, it said.

Released less than a week before US President-elect Joe Biden formally takes his oath as the leader of the world’s biggest economy on 20 January, the USCBC study expounded on the benefits of having healthy US-China trade relations.

“With China forecast to drive around one-third of global growth over the next decade, maintaining market access to China is increasingly essential for US businesses’ global success,” the USCBC-commissioned study stated.

Biden will take over the reins from incumbent US President Donald Trump, whose administration launched a trade war with China in July 2018.

“The trade war with China hurt the US economy and failed to achieve major policy goals outlined by the Trump administration,” according to the study.

“Rather than benefiting the economy, it has reduced US economic growth and employment, resulting in an estimated peak loss of 245,000 jobs,” it added.

It remains a big question mark whether the US will soften its stance on China under Biden, who is facing a daunting task of rebuilding the economy amid the havoc being wreaked by the deadly coronavirus pandemic.

The US has the highest coronavirus infections in the world at more than 23m.

Focus article by Pearl Bantillo

Click here to view related stories and content on the US-China trade war topic page

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.