Trade Wars: The Cases of USA, Mexico, China

Abstract

This paper analyzes trade wars and their potential macroeconomic effects with a hypothetical approach through the cases of the US, China and Mexico. The three main scenarios and retaliatory behaviors used in this analysis are the unilateral launch of a trade war by the US, a bilateral trade war between the parties, and an optimal equilibrium in line with the Nash equilibrium. The main conclusions of the study are that it would not lead to any welfare gains, but rather to large welfare losses. Also, the optimum equilibrium provided by Nash equilibrium is the scenario that minimizes the total welfare loss.