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The United States and China could see a permanent loss of three
percent of economic output and the European Union (EU) four
percent in the case of a full-blown trade war, it estimated on
Tuesday.
In the EU's case, that translates into the loss of 1,250 euro
($1,451) annually per habitant, it added.
It defined a generalized trade war as a 60 percentage point hike
in tariffs on manufactured goods and restrictions on services
among major trade partners.
The Council of Economic Advisors' chairman Philippe Martin said
tariff hikes of that magnitude were on par with increases seen
during the 1930s. By comparison, tariffs are currently less than
three percent on average in the United States and the EU.
The economic losses from a full-scale trade war would be worst
for relatively small, open economies, topping 10 percent of
gross domestic product for Canada, Ireland, Mexico, South Korea
and Switzerland.
Even in a more limited trade war, the impact would still be huge
with a nearly 60 percent drop in bilateral trade between China
and the United States if the two countries hit each other with a
25 percent tariff hike on all trade between them.
Against that backdrop, the body recommended coordinating
counter-measures to Washington's current and planned tariff
hikes with trade partners such as Japan and Canada, while
pushing for reforms at the World Trade Organisation (WTO).
It also said Europe should keep seeking bilateral trade deals as
an "insurance policy" that could limit the impact of a
full-blown trade war.
However, the EU should not accept future deals unless the
partner country has ratified the Paris Climate Accord and OECD
standards for closing cross-border corporate tax loopholes.
(Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta)
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