The Double Whammy of the US-China Trade War and the COVID-19 Pandemic
Authors:   Asia-Europe Perspective Association, Yoon Seung-Hwan , Ahn Se Hwa 
Published: December 2024

Using a global, multisector, computable-general-equilibrium model, this paper undertakes to identify the economic impact of the US-China trade war initiated by the Trump administration and the impact of COVID-19, which spread as a global pandemic in 2020, on the global economy and international trade.
Analytical results reveal that the US-China trade war had a negative effect on both the U.S. and China and resulted in an increase in real GDP for the rest of the world. But the effect of the protectionist policy implemented by the U.S. was very minimal, raising questions about the effectiveness of the policy. When COVID-19 struck the world, the GDP of all countries, including the United States, decreased. Among them, the GDP of the United States and ASEAN fell more sharply, and the rapid increase in the unemployment rate seems to be the leading cause. In addition, the economic damage arising from the COVID-19 pandemic was much greater than that of the US-China trade war around the world, suggesting that overcoming COVID-19 as soon as possible is required to minimize economic damage. Each country’s economic stimulus packages were found to have a mitigating effect to some extent, with the exception of some countries, even if the damage caused by the US-China trade war and the COVID-19 pandemic could not be completely reversed.
Regarding the impact of each scenario on international trade and trade balance, when the U.S. and China raise tariffs, both the U.S. and China show a decrease in both exports and imports. Still, the extent of the drop in imports is even greater than in exports, leading to a surplus in the trade balance. In the case of the COVID-19 pandemic, exports and imports decline in all countries, but the scale and direction of the decline are different for each country. The U.S. records a trade surplus, but China shows otherwise. In the case of private consumption expenditure, which is closely related to income, both countries’ expenditure decreases when tariff hikes by the U.S. and China. However, in all countries except the U.S. and China, consumption expenditure increases, albeit minimally. Consumption in all countries decreases due to COVID-19, albeit variously. Only in China does consumption expenditure increase, in this scenario by 0.98% to 2.2%, suggesting that economic disruption caused by COVID-19 is relatively small. Compared to other countries, as the decline in the unemployment rate is also relatively small, income most likely could be maintained, leading to increased consumption. In terms of the sectoral output in each country, in the case of scenario 5, assuming the double whammy of the US-China trade war and the COVID-19 pandemic, overall production of the service industry significantly decreases compared to that of the manufacturing industry. In particular, a decline in the service industry’s output is experienced in all countries except China and ASEAN. In order to reflect the damage caused by COVID-19 as realistically as possible in the model, the actual unemployment data of each country is used; however, the difference in the absolute terms of the unemployment rate in the scenarios seems to provide these results. Also, depending on each country’s economic and industrial structure, the shock response to the drop in the employment rate appears to be different. This suggests that job security has a significant impact on each country’s economy. In particular, the output of service industries (accommodation & food, transport, travel and tourism, recreation and leisure activities) with a relatively high proportion of self-employed workers reflects a significant decline, which is expected to impact these self-employed workers severely.