The Effects of Trade Wars on World Welfare

Abstract

In this study, the effect of the trade wars between the USA and China on the countries' economies was investigated. The European Union, a global economic power, is also involved in the study. The relationship between countries' foreign trade, trade volumes, and world GDP has been examined with six different hypotheses. For this purpose, Granger and Toda-Yamamoto causality test and Johansen cointegration analysis were used. Evidence has been obtained that there is a causal relationship between the foreign trade of countries and the World GDP. Another finding is a long-term relationship between the foreign trade of countries and world GDP. As a result, it has been determined that trade wars negatively affect countries' welfare.