Mapping out trade war scenarios

President Trump’s trade war has created material downside risks for the global economy. Our forecasts assume that tariffs on most countries outside China will stay at 10% and retaliation by other governments will be moderate. In this scenario, global GDP would be about 0.4% lower in two years’ time than in a pre-tariff baseline. However, if deals aren’t reached, pauses expire, and the US partially reverts to its Liberation Day tariffs while maintaining ~145% tariffs on China, then the hit to global GDP would be closer to 1%. This would be roughly equivalent to the global damage resulting from the euro-zone crisis.