The return of Trump’s threat: a new episode of the US-China trade war

Abstract The re-emergence of Donald Trump in the global political scene with the "America First 2.0" agenda has sparked a fresh round of the trade war between the United States and China. This study investigates the systemic impact of Trump's protectionist policies, particularly the reciprocal tariff policy announced in April 2025. Simulations of various tariff escalation scenarios between the two countries are conducted using the Computable General Equilibrium (CGE) approach through the GTAP model. The findings show that reciprocal tariff increases are associated with significant declines in key economic indicators, such as GDP, investment, exports-imports, household income, and national welfare, with a greater impact on China. Sectoral analysis in the US reveals that labor-intensive sectors, such as textiles, has gained benefits while high-tech sectors suffered losses. On the contrary, China's energy sector has experienced growth due to import substitution. These findings confirm that extreme protectionist policies tend to be counterproductive, creating economic distortions, policy uncertainty, and undermining the global trade order. Finally, the study recommends a multilateral and data-driven approach as a more sustainable trade strategy amid rising global geopolitical tensions.