Results of the modeling

Revoking PNTR would increase the price of imports in the US through the direct impact of tariffs on prices; demand for Chinese currency (RMB) would decline, causing the US dollar to appreciate relative to the RMB; the higher prices from the tariffs would be partly offset by the appreciation of the US dollar; importers of consumer and intermediate goods would switch from importing from China to importing from other countries or sourcing goods domestically. (p. 6)
PNTR revocation would lead to a decline in US incomes and a more pronounced decline in Chinese incomes; this decline would intensify if China retaliated by limiting access to its markets; China’s GDP would decline by 0.6 percent in 2025 due to effects from the tariff and if China responds by raising interest rates to protect the yuan; over time, production would shift from China to other countries leading to lower long-run GDP in the US and an even greater decline in China; aggregate employment outcomes would be similarly impacted. (pp. 6-8, Figures 1-2)

Higher tariffs would increase prices for consumer and intermediate goods, contributing to US inflation of 0.2 percent in 2025 or 0.4 percent if China retaliates; prices would remain 0.4 percentage points higher forever, though US dollar appreciation would dampen some of the impacts of the tariff increase on price levels; increased input costs would lead to inflation in the US and deflation in China because of the decline in demand for Chinese exports and tightening of Chinese monetary policy. (pp. 6-7 and 9, Figure 3)
Different sectors will be affected differently given different tariff changes, production structures in each sector, and the relative importance of foreign versus US demand for output; the three sectors with the largest declines in output in 2025 and over the long term are those exposed to trade, including agriculture (because of appreciation of the dollar), durable manufacturing and mining (because of contraction of investment and dependence on China as a source of intermediate inputs); losses in agriculture and durable manufacturing double if China retaliates; mining is not as affected because of lower trade exposure; the model understates the true impact of revoking PNTR by not fully capturing efficiency losses. (pp. 5 and 8-10, Table 2 and Figure 4)
Decline in demand for output from each sector would be mirrored by the decline in demand for labor in each sector; most job losses would be in agriculture, mining, and durable manufacturing; over time, these unemployed workers would be absorbed into the services sector; China’s retaliation would increase job losses across the economy, especially in agriculture and durable manufacturing. (pp. 10-11, Figure 5)

Imposition of tariffs and retaliation by China would immediately affect the stock market prices of the sectors most affected; US tariff policy and retaliation by China would affect overall trade balances; China’s trade balance would improve by 1.2 percent of GDP in 2026 because of RMB depreciation; Canadian and Mexican trade balances would deteriorate because of capital inflows due to reallocation from China; the US trade balance would deteriorate relative to its baseline; US imports from China would fall and imports from other sources would rise, while overall both imports and exports would fall, meaning the trade balance would not improve; the fact that some capital outflows from China would flow into the US implies that investment would fall less than savings, widening the current account and trade deficit. (pp. 11-13; Figures 5-7)
Table 3 reports the cumulative impact on the US economy in 2025-28 with and without China’s retaliation; most notably, GDP is estimated to fall by $158.7 billion and the value of durable manufacturing production would fall by $532 billion; results will be larger if US productivity growth declines in response to the disruption in availability of specialized inputs; as industrial intermediates would likely be exported from China to third countries and then exported to the US as inputs into final goods, the US may additionally tighten rules of origin, deepening adverse impacts documented in this analysis. (p. 14, Table 3)