The US-China Trade Deal: Back of the Envelope Estimate of the Economic Impact

Abstract

The US-China trade deal has received at best a lukewarm initial reception from the trade policy community. China is to buy US$ 200 billion of US goods and services per annum in 2020 and 2021 above 2017 baseline levels; the US lowers tariffs by 7.5% on imports from China of US$120 billion of goods. However, the economics of these commitments have to be worked out to determine the welfare effects. This note considers the quantitative impacts in broad-brush terms and concludes that real GDP gains for the United States could amount to as much as 0.15% in 2021 above baseline, while China could turn the agreement to its advantage if it multilateralizes the response by removing for all partners the import-restricting non-tariff measures that the United States has targeted. Notwithstanding the damage to the multilateral rules-based system caused by the nature of the deal (which nonetheless invokes WTO disciplines), this agreement need not represent a deadweight economic loss.

Keywords: United States, China, managed trade, Phase 1 Agreement

JEL Classification: F14