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In July 2018 the Trump Administration initiated a tariff war by imposing additional duties of 25 percentage points on selected imports from China. As promised, China responded with bilateral tariffs of its own. As a result, both countries are worse off. Not so obvious is the impact on third countries, including exporters competing with the USA, such as Australia or Brazil, or exporters competing with China to supply the US market, such as Korea and Japan. Analysis using a global computable general equilibrium model suggests that a bilateral tariff war does not make every country worse off. Indeed, if the effects are confined to tariff cuts, as opposed to investment flows, most countries gain. This is because most imports between the USA and China have substitutes, albeit imperfect. This means that most imports can be obtained elsewhere. Conversely, both the USA and China can export to alternative markets. Trade and welfare effects are presented.


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