Trump's trade tariffs would cost every Swiss citizen at least CHF 200 per year
If Donald Trump prevails in the US presidential election on 5 November and introduces the announced trade tariffs, this would lead to global economic losses. The USA itself would suffer the most. However, according to KOF calculations, the Swiss would also be substantially affected with costs of at least CHF 200 per capita per year.
Republican presidential candidate Donald Trump has proposed extensive new tariffs on US imports. The particular focus is to be on goods from China. The aim is to reduce trade imbalances and protect domestic industry. One option Trump has mentioned is for the USA to impose a 60% tariff on imports from China and a 20% tariff on goods from all other countries.
KOF economists Hans Gersbach, Paul Maunoir and Kieran Walsh have used the newly developed KOF trade model to calculate how these tariffs could affect the economy in the USA and around the world.
Analysis considers direct effects - lower bound for potential GDP losses
In their as yet unpublished work, the authors focus on the direct effects that Trump's trade policy could have on various countries. The direct effects refer to the direct impact of tariffs on production and output via demand and price channels.
Trade tariffs can trigger other effects, such as changes in foreign direct investment, potential supply chain disruptions in the event of supplier default or exit, effects on government revenue or shifts in innovation activities. These additional effects have not been factored into the analysis. The estimates for Europe therefore represent a lower bound for potential losses in real gross domestic product (GDP) in Europe.
The open question: How will China react?
The impact of the tariff increase depends on whether China responds with countermeasures. The authors consider four different scenarios in terms of the timeframe and China's response: (1) short-term impact, no policy response from China; (2) short-term impact, China responds with a 60% tariff on imports from the US; (3) long-term impact, no policy response from China; and (4) long-term impact, China responds with a 60% tariff on imports from the US.
Tough consequences for the USA
According to the calculations of the KOF trade model, the level of real GDP in the US falls by more than 2.5% in the short term, while the losses in China are much smaller (-0.5% with and almost -0.2% without countermeasures). In the long term, the decline in US GDP is almost one percentage point less as it becomes easier to substitute imports with domestic and non-Chinese inputs. One reason why the Chinese economy suffers less than the US economy is that the US economy is much more dependent on Chinese industrial inputs than vice versa. Although the average economic loss for the US is large, individual industries and regions in the US can benefit from the protection.
Long-term economic losses for Switzerland
According to the calculations, the level of real GDP in Switzerland will fall by more than 0.2% as long as the trade barriers are in place. The pharmaceutical industry in particular is strongly directly affected, but manufacturers of machinery, appliances, precision instruments, watches and foodstuffs, for example, would also suffer significantly from the tariffs. Due to the great importance of the US for Swiss exports, the Swiss economy is significantly more impacted than that of many other European countries.
For Switzerland, the losses amount to at least CHF 200 per capita for each year in which the tariffs are imposed. Whether China takes countermeasures or not has only a minimal impact on the losses for Switzerland, as the Swiss economy is not directly affected.
Contact
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