No abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

In 2018, the United States (US) Administration initiated several trade actions, including tariffs on China for unfair trade practices outlined by the US Trade Representative (USTR). In response, China filed requests for consultations with the World Trade Organization (WTO) and has implemented or threatened to implement increased tariffs on US products. In this article, the implications of current and potential US trade actions and responses by China on the US and global economy are estimated. We employ a dynamic supply chain model based on the widely used Global Trade Analysis Project (GTAP) Data Base and model. Our analysis finds that US gross domestic product (GDP) would be reduced by a projected –0.86 per cent in 2030 (or US$227.8 billion in 2017 dollars), as the role of the USA in global supply chains declines significantly. China’s GDP would also decline considerably by 2.84 per cent as a result of the actions imposed against it, while the rest of the world gain, as they fill the gaps left by US and Chinese producers. JEL: F16, C68

Emerging issues facing open economies, including global value chains and non‐tariff measures, have important implications for demand that are often not well suited for analysis with the supply‐side mechanisms commonly found in economic models – namely taxes and productivity. The aim of this paper is to provide a methodological approach for implementing demand‐side changes. Specifically, the approach adapts the Armington equation to model a change in consumers' willingness to pay for imports. To illustrate, we estimate the impacts of the World Trade Organization's Trade Facilitation Agreement (TFA). Estimated ad valorem equivalents of the TFA are applied as demand‐side shocks to consumers' willingness to pay in a global applied general equilibrium model and the results compared to those obtained using Samuelson's iceberg approach. We find that the iceberg approach results in a technical change which increases the productivity of imports, raising real GDP, while the willingness‐to‐pay approach causes a smaller rise in real GDP, although trade increases further. The impact on the terms of trade differs significantly between the two mechanisms, with prices falling as costs fall, under the iceberg method, and rising with increased willingness to pay. Our results clearly show that the choice of mechanism matters.

No abstract