The Impacts of China-US Trade Friction on Global economy and China’s Subnational economy

Since President Donald Trump provoked China-US trade frictions on the grounds of trade deficits in 2018, the US economic frictions with China have escalated, highlighting the expanding range of goods subject to tariffs, the rising tariff level and the spreading frictions. In particular, provinces play an very important role in carrying the impacts of US tariffs on China. China and the US are major influencers on the global economy. The tariffs affect a country’s economic growth, and change its internal flow of production factors across provinces and even its spatial pattern of economic activities. China’s provincial economies show strong disequilibrium in development level and industrial structure, which directly determines the differences in direct foreign economic and trade ties and role in the division of labor on global value chains. Three scenarios of US imposing tariffs to totally different degrees are designed, under which the impacts on the economic aggregates, imports and exports of China, the US and major trading partners are simulated. According to the simulation results, the soft linkage between the global computable general equilibrium model and China’s multi-provincal input output model is applied to assess the impacts of US tariffs on China’s subnational economy. The impacts of US tariffs on subnational economy are different by province. The direct and total impacts of US tariffs on GDP of eastern coastal provinces including Guangdong, Zhejiang, Jiangsu, Fujian and Shanghai are relatively large. For Anhui, Shanxi, Shaanxi, Inner Mongolia, Gansu and other central and western provinces, the imposition of tariffs indirectly impacts their GDP by affecting the exports of other provinces. Scenario 3 witnesses the hardest impact on provinces’ GDP.