What is the likely outcome of a trade war between the U.S. and the rest of the world?
On June 14 the Trump administration announced new tariffs on $50 billion of Chinese goods, which prompted China to launch retaliatory measures in a trade war it claims the U.S. has started. A few days later, the U.S. president threatened to impose a 10 percent tariff on $200 billion of Chinese goods, sparking another warning from Beijing that it would hit back again. The administration had earlier imposed a 25 percent tariff on imports of steel, and a 10 percent tariff on aluminum, on all countries, leading several U.S. allies to devise their own plans for tariffs on U.S. goods. The European Union, for instance, just imposed penalties on $3.2 billion worth of American products. These developments may be just the beginning of an escalating trade war between the U.S. and the rest of the world. Predicting the economic outcome of this burgeoning conflict for participating countries is no easy task,...