An all-out trade war would hit China hard. Its economic growth rate would slow to just 4% per annum and would stay below 5% per annum for around five years. This is well below official targets and would be China’s worst economic growth performance in almost three decades.An escalation of the trade war would also be extremely serious for Australia. Its impacts would last almost a decade, with an estimated loss of national income of nearly half-a-trillion dollars over 10 years, or the equivalent of losing just over 40% of last year’s household disposable income. Job losses in Australia would also be significant under such a scenario, falling almost 60,000, and pushing real wages down by about $16 per week for the average worker. The modelling by KPMG Australia confirms the best strategy for the rest of the world is to resist the political pressure to join a US-China trade war, despite the likelihood there may be increased domestic pressures to protect local industries from any displaced US and Chinese products looking for a new market.In a limited trade war between the US and China, where the tariff increases are restricted to those already announced and foreshadowed by the US, Australia’s GDP would be about 0.3% lower after five years and we would incur a real GDP loss of A$36 billion over a decade. This is mostly due to the reliance of Australian commodities as intermediate inputs in the production process in China, and the likely loss of services exports in education and tourism to China.