“Trade Wars and Trade Talks with Data”

by

Ralph Ossa:

I propose a flexible framework for the quantitative analysis of unilateral and multilateral trade policy. It is based on a multi-country multi-industry general equilibrium model of international trade featuring inter-industry trade as in Ricardo (1817), intra-industry trade as in Krugman (1980), and special interest politics as in Grossman and Helpman (1994). By combining these elements, it takes a unified view of trade policy which nests traditional, new trade, and political economy motives for protection. Specifically, it features import tariffs which serve to manipulate the terms-of-trade, shift profits away from other countries, and channel profits towards politically influential industries…

With regard to multilateral trade policy, I find that the world trade war tariffs vary widely across industries, countries, and trading partners and average 63 percent. This is roughly in line with the noncooperative tariffs observed following the Smoot-Hawley Tariff Act of 1930. They would substantially decrease real income in all countries with the average loss amounting to 4.1 percent. I also find that tariff changes which correspond to the GATT/WTO principle of reciprocity can be characterized by a simple formula which is easy to implement in practice. While this formula identifies a number of industries in which there is still scope for future reciprocal trade negotiations, it also suggests that the overall gains from such negotiations would be quite small…

I believe that this is the first quantitative framework which nests traditional, new trade, and political economy motives for protection. I also believe that this is the first study which provides estimates of optimal and noncooperative tariffs at the industry level for the major players in recent GATT/WTO negotiations…

My application focuses on 7 regions and 26 manufacturing industries in the year 2005. The regions are Brazil, China, the EU, India, Japan, the US, and a residual Rest of the World and are chosen to comprise the main players in recent GATT/WTO negotiations.

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