Peterson Institute: Trump's threatened tariffs projected to damage economies of US, Canada, Mexico, and China
McKibbin and Noland at the Peterson Institute for International Economics modeled the impact of Trumps threatened tariffs. They find modest negative imaocts on the US and China, but more pronounced impacts on Mexico and Canada. They also question whether Thrumps will act
“We begin with the threat to impose a 25 percent tariff on all goods from Mexico and Canada. Figure 1 shows that the imposition of the tariff would slow growth and accelerate inflation in all three countries. (Click on the tabs in the figures to filter by “Real GDP” and “Inflation.”) For the duration of the second Trump administration, US GDP would be around $200 billion lower than it would have been without the tariffs. Canada would lose $100 billion off a much smaller economy, and at its peak, the tariff would knock 2 percent off Mexico’s growth rate.”
“If the US imposed an additional 10 percent tariff on China and China responded in kind, US GDP would be $55 billion less over the four years of the second Trump administration, and $128 billion less in China. Inflation would increase 20 basis points in the US, and after an initial dip, 30 basis points in China. ”
“The result of combining the threats—a 25 percent tariff on Canada and Mexico and an additional 10 percent tariff on China (which retaliates)—is shown in figure 3. The damage is worse for the US than any of the previous scenarios, basically because the possibilities for substituting trade between Mexico and China are reduced, generating larger GDP losses and higher inflation. The results for the three partners are similar to the previous scenario.”