Implications of the US–China Tit-for-Tat Tariff Escalation: A Literature Review of Standard Trade Theory and Empirical Evidence on Economic Consequences and Effects on Both Countries

This study reviewed standard international trade theories as they pertain to the impact of trade restrictions. Current empirical studies were reviewed to see whether evidence supports trade theory predictions. Conventional price impacts in standard models of international trade show that trade restrictions are detrimental for trade for both countriesinvolved, and the empirical evidence from current studies confirmed this. The current tit-for-tat tariff escalation between China and the United States has led to, among other things, increased domestic prices to both American consumers and producers; lower export prices to some of the Chinese exporters and American firms based in China; reduced import and export trade between the two countries that would lead to costly adjustments in supply chains; loss in net welfare and employment; and loss in competitive advantage to firms in both countries that produce for export. Therefore, efforts should be made to de-escalate these trade tensions.