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Takahide Kiuchi, Executive Economist at Nomura, notes that the US-China trade war has escalated, with the two countries slapping tit-for-tat retaliatory tariffs on each other.

Key Quotes

“In a worst-case scenario, the two countries could end up imposing additional tariffs averaging around 10% on all imported goods from the other country. According to estimates by the Organisation for Economic Cooperation and Development (OECD), that worst-case scenario would reduce US GDP by 2.2% and China’s GDP by 1.7%.”

“Combining the OECD estimates with the macroeconomic model published by Japan’s Cabinet Office, US-China trade frictions could reduce bystander Japan’s GDP by 1.9%, a negative impact somewhere in between the impact on the economies of the two directly involved parties.”

“Moreover, given the expansion of the global value chain and the complicated global trade system, the negative impact on economic activity in third-party nations, including Japan, may not be fully captured by the estimates generated by these models.”