Introduction
The impact of tariffs on global trade is a multifaceted issue that affects various aspects of the global economy, including trade volumes, supply chains, prices, and environmental factors. This synthesis aims to consolidate findings from multiple research papers to provide a comprehensive understanding of how tariffs influence global trade dynamics.
Key Insights
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Reduction in Trade Volumes and GDP:
- Tariffs generally lead to a significant reduction in global trade volumes and GDP. For instance, an extreme anti-trade scenario with high tariffs could reduce global export volume by 32.5% and GDP by 9.0%. Similarly, the US-China trade war has shown to decrease bilateral trade and affect overall imports and exports .
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Impact on Supply Chains:
- Tariffs disrupt global supply chains, leading to increased costs and reorganization of trade flows. The US-China trade war, for example, has caused significant changes in supply chains, with some trade flows shifting to other countries like Vietnam and New Zealand . Additionally, tariffs on intermediates have a cascading effect, increasing cumulative tariffs and negatively impacting global value chain participation.
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Price Increases and Welfare Effects:
- Tariffs lead to substantial increases in the prices of intermediates and final goods, which in turn reduces real income and welfare. The 2018 US tariffs resulted in higher domestic prices for imported goods and a reduction in aggregate US real income by $1.4 billion per month. Similarly, the US-China tariffs have led to a decline in China's welfare and a slight improvement in the US welfare due to changes in terms of trade.
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Environmental and Health Implications:
- Trade restrictions can lead to a reduction in carbon dioxide emissions and air pollution due to decreased production levels. An anti-trade scenario could reduce global carbon dioxide emissions by 6.3% and PM2.5-related mortality by 4.1%. However, freer trade scenarios could increase emissions and pollution, especially in developing regions with high emission intensities.
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Sector-Specific Impacts:
- The impact of tariffs varies across different sectors. For example, the US-China trade war has significantly affected the global forest product markets, with notable decreases in imports and exports of specific products like sawnwood and plywood. Similarly, NAFTA's tariff reductions had a substantial impact on trade volumes in highly protected sectors but a modest effect on prices and welfare.
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Trade Diversion and Regional Effects:
- Tariffs can cause trade diversion, where trade flows shift from one country to another. For instance, the US-China trade war has led to trade diversion to countries like Vietnam and New Zealand, while countries like Thailand have suffered losses. Additionally, regional trade agreements like NAFTA have shown to increase trade volumes within member countries while reducing imports from nonmember countries.
Conclusion
Tariffs have a profound impact on global trade by reducing trade volumes, disrupting supply chains, increasing prices, and affecting welfare. While they can lead to environmental benefits by reducing emissions and pollution, they also cause significant economic disruptions and trade diversions. The effects of tariffs are complex and vary across different sectors and regions, highlighting the need for careful consideration in trade policy decisions.