Macroeconomic Impact of Sino-U.S. Trade Frictions : Based on a Two-Country Two-Sector DSGE Model

In order to explore the impact of the Sino-U.S. trade frictions on the macroeconomics of China and the United States, we construct a two-country two-sector dynamic stochastic general equilibrium (DSGE) model to explore the tariff transmission mechanism in trade frictions, which also provides a basic analytical framework for the studies of bilateral trade frictions. Our results show that the transmission mechanisms of tariff shocks can be divided into two types, both start with the impact on the tradable sector. We also find that the impacts of the trade frictions on the macroeconomic of the two countries by simulation are asymmetrical, which are basically consistent with the objective economic realities. Moreover, the results of the welfare loss analysis show that there is no absolute beneficiary in the Sino-U.S. trade frictions, and the United States, as the initiator of the trade frictions, suffers more welfare losses than China