How will the trade war hit the economy?

Abstract

The United States has set extensive barriers to trade and trade policy uncertainty has increased. A trade war triggered by the proposed increases in import tariffs could, in model-based scenarios, weaken the level of output globally by some 0.5%. The impacts on the euro area economy could be larger. In contrast, the impacts of a trade war on euro area inflation would remain relatively modest. The full impact of the tariffs is subject to a number of uncertainties. None of the parties seem to benefit from a trade war, and reaching a balanced solution in negotiations would be the best outcome for everyone.