Study: U.S. stands to lose most in trade war with China

Sept. 26 (UPI) -- An escalating trade war between the United States and China and other countries could end up hurting the U.S. economy the most, new research from the European Central Bank said Wednesday.

The research shows that real economic activity in the United States could fall more than 2 percent below the baseline in the first year. After three years, the gross domestic product would be down 1 percent from its starting point.

"Qualitatively, the results are unambiguous: an economy imposing a tariff which prompts retaliation by other countries is clearly worse off," the study said. "Its living standards fall and jobs are lost."

The ECB report came a day after President Donald Trump vowed in an address to the U.N. General Assembly to renegotiate broken trade deals, saying other countries have abused the United States' open markets for years.

The United States has imposed tariffs this year on $250 billion worth of Chinese imports. The latest fiscal penalties took effect Monday, which drew a rebuke from Beijing.

China would grow faster in the first year because it could offset the trade lost to the United States by finding new partners, the research said.

"In the first year of the simulation, domestic consumption and investment fall in China," the report said. "However, these negative effects are more than compensated by gains in China's net export position: the United States imports fewer Chinese goods, but that is cushioned by trade diversion to third countries; where Chinese exporters gain market share at the expense of U.S. exporters."

Worldwide, there could be a 3 percent reduction in overall trade.

"The scenario of a global trade war will have a dramatic effect," said Roberto Azevedo, director of the World Trade Organization.

The WTO chief also warned that U.S. trade policy would be a "challenge to basic principles" of international exchange.