Working Paper: CEPR ID: DP5993
Authors: Hamid Faruqee; Doug Laxton; Dirk Muir; Paolo Pesenti
Abstract: In the evolving debate and analysis of global imbalances, a commonly overlooked issue pertains to rising protectionism. This paper attempts to fill that gap, examining the macroeconomic implications of trade policy changes through the lens of a dynamic general equilibrium model of the world economy encompassing four regional blocs. Simulation exercises are carried out to consider the imposition of uniform and discriminatory tariffs on trading partners as well as the case of tariff retaliation. We also discuss a scenario in which a ?globalization backlash ?lowers the degree of competition in import-competing sectors, and compare the implications of higher markups in the product and labor markets.
Keywords: current account deficit; multicountry DGE models; net asset positions; trade policy
JEL Codes: E66; F32; F47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Imposition of tariffs (F13) | Improvement in U.S. current account balance as a share of GDP (F32) |
| Imposition of tariffs (F13) | Negative repercussions on emerging Asia's GDP, consumption, and investment (F62) |
| Simultaneous imposition of tariffs by all countries (F13) | No one benefits overall (D61) |
| Protectionist pressures (F52) | Backlash against competition-friendly reforms (L49) |
| Backlash against competition-friendly reforms (L49) | Higher markups in labor and product markets (J49) |
| Higher markups in labor and product markets (J49) | Exacerbation of global imbalances (F65) |