Energy Trade and Welfare Effects of the 2025 US–China Tariff Shocks: A Recursively Updated GTAP Analysis

Abstract

The 2025 tariff escalation between the United States (US) and China generated uneven macroeconomic and energy-trade effects. Using a Global Trade Analysis Project (GTAP) model updated recursively to a common 2023 benchmark, we analyze five independent cumulative-tariff scenarios, a sequential experiment, and five Armington-elasticity settings. Under the peak 145% common-baseline scenario S4, China’s equivalent variation falls by USD 203.59 billion and real GDP by 0.59%, whereas US welfare rises by USD 41.43 billion despite a 0.19% GDP decline. China incurs allocative-efficiency and terms-of-trade losses, while the US terms-of-trade gain exceeds its allocative-efficiency loss. These S4 macroeconomic directions remain robust across the elasticity settings. Energy responses are heterogeneous: China’s natural-gas output falls by 11.21%, US electricity output rises by 17.32%, China’s electricity imports increase by 97.62%, and US coal imports increase by 108.32%. All S4 energy-import responses remain positive across the elasticity settings, although some output and export responses change direction. Third-party energy-trade increases are more frequent than decreases but vary across products and economies. In the sequential S5 experiment, reducing the tariff shock from 145% to 30% raises real GDP in both countries relative to S4 but reverses the welfare pattern: China gains, whereas the US loses. Overall, tariff de-escalation eases output losses without producing symmetric welfare gains.