Twin trade shocks: Spillovers from US-China trade tensions

摘要

The paper assesses international spillovers from a twin demand shock, originating sequentially in two large economies. Using a network-based spillover model, the paper concludes that while the initial shock may be modest, the network effects in shock spillovers can be substantial, comparable, and often exceed the initial shock. Individual countries may amplify, absorb, or block spillovers. To illustrate the model, the paper quantifies the macroeconomic impact of a hypothetical reduction of bilateral trade between the United States and China as a result of mutual trade restriction.