Economic Implications of Revoking China’s Permanent Normal Trade Relations (PNTR) Status

Excerpt:  “We find that revoking China’s PNTR status causes a short-term decline in US GDP relative to baseline from which the economy never fully recovers. The overall decline in output and employment felt unevenly across the economy, with agriculture, durable manufacturing, and mining taking the biggest hits. In the long run, workers displaced by the change shift into services employment (with lower real wages across the economy), but given the geographic remoteness of some agricultural and mining activities, this adjustment may not be as smooth as depicted by the model. Inflation rises by 0.2 percentage points (0.4 percentage points if China retaliates) in response to the imposition of additional tariffs, which raises both the price of imported goods for final consumption and the price of imported intermediate inputs used in domestic production. Stock market prices fall, with firms in agriculture, durable manufacturing, and mining absorbing the biggest declines. All of these impacts are magnified if China retaliates. Ironically, the policy damages the US industrial sector and contributes to a widening of the US trade deficit—the exact opposite of what proponents of this policy intend to achieve.”