US-China Trade War: The Hidden Calculus of Welfare and Output

New research from the China University of Petroleum–Beijing highlights a sharp divide between economic growth and national welfare during trade conflicts. By applying a Global Trade Analysis Project model to 2025 tariff scenarios, Tingting Wang and Yuqing Jiang demonstrate that welfare gains in the U.S. are primarily driven by favorable terms of trade—the relationship between export and import prices—rather than improved efficiency or output. While Washington gains financially from these price shifts, its real GDP still contracts by 0.19%. China, conversely, faces a 0.59% drop in GDP alongside massive welfare losses stemming from reduced resource-allocation efficiency.

Energy markets complicate this narrative further. Contrary to the expectation that tariffs suppress trade, the study finds that bilateral barriers often trigger a surge in electricity and coal imports as nations scramble to substitute suppliers. In the peak 145% scenario, U.S. electricity exports jumped by over 224%, while China’s coal imports rose by 9.23%. These shifts create unexpected winners outside the bilateral conflict: Australia and Russia recorded welfare gains of $11.39 billion and $8.11 billion, respectively, by absorbing trade flows redirected from the primary belligerents. The findings suggest that when trade wars erupt, the resulting economic damage is rarely symmetric, and the true impact is often hidden in the volatility of commodity prices rather than simple trade volumes.