- The US has benefited from trade and investment flows with China. The combination of bilateral trade, investment, and supply chain integration has supported economic growth, consumer choice, and job creation. In 2019, exports to China supported 1.2 million jobs in the US and as of 2018, 197,000 people in the US were directly employed by Chinese multinational firms. US companies invested $105 billion in China in 2019, and the profits from these investments and the contribution they make to the competitiveness of US businesses help support the US economy through R&D, domestic investment, and dividend payments. With China forecast to drive around one-third of global growth over the next decade, maintaining market access to China is increasingly essential for US businesses’ global success.
- The trade war with China hurt the US economy and failed to achieve major policy goals outlined by the Trump administration. Rather than benefiting the economy, it has reduced US economic growth and employment, resulting in an estimated peak loss of 245,000 jobs. Tariff rates remain at a multi-decade high despite both countries reaching a phase one trade agreement in early 2020. While the agreement made important progress on longstanding trade barriers in agriculture, financial services, and intellectual property protection, it failed to address a range of administration concerns over Chinese state-owned enterprise disciplines, distorting subsidies, data and cybersecurity, and other areas of market access. While the trade deficit with China did narrow in 2019, this was offset by an increased trade deficit with the rest of the world, leaving the overall US trade deficit broadly unchanged.
- Scaling back tariffs would likely benefit the US economy and create jobs. Even a moderate rollback in tariffs could increase economic growth and stimulate employment growth. Under our trade war de-escalation scenario, where both governments gradually scale back average tariff rates to around 12% (compared with around 19% now), the US economy produces an additional $160 billion in real GDP over the next five years and employs an additional 145,000 people by 2025. US household income would be $460 higher per household as result of increased employment and incomes as well as lower prices.
- Escalating trade tensions and significant decoupling with China would hurt the US economy further and reduce employment. Our trade war escalation and decoupling scenario sees the US economy produce $1.6 trillion less in real GDP terms over the next five years and results in 732,000 fewer jobs in 2022 and 320,000 fewer jobs in 2025. In addition to a significant near-term shock to economic output, long-term effects would permanently lower GDP, reflecting lower economic productivity. By the end of 2025, US households will have lost an estimated $6,400 in real income.
For more information, or to schedule interviews about the report, contact Senior Director of Communications Doug Barry at [email protected].