The US-China Trade Dispute: A Macro Perspective

Rod Tyers, Yixiao Zhou
2019 Social Science Research Network  
The recent rise of populism and authoritarian politics has seen a turn from multilateralism and toward international disputes like that between the US and China. This paper uses a calibrated global macro model to assess the potential economic consequences of this conflict under explicit assumptions about monetary and fiscal policy. US unilateral protection emerges as "beggar thy neighbor" policy, the more so if new tariff revenue affords capital tax relief. China's proportional losses are
more » ... atively large and little mitigated by retaliation, which nonetheless constrains US net gains. Avoiding leakage by protecting against all sources causes substantial losses in third regions trading with China and the US. Abstract The recent rise of populism and authoritarian politics has seen a turn from multilateralism and toward international disputes like that between the US and China. This paper uses a calibrated global macro model to assess the potential economic consequences of this conflict under explicit assumptions about monetary and fiscal policy. US unilateral protection emerges as "beggar thy neighbor" policy, the more so if new tariff revenue affords capital tax relief. China's proportional losses are comparatively large and little mitigated by retaliation, which nonetheless constrains US net gains. Avoiding leakage by protecting against all sources causes substantial losses in third regions trading with China and the US. 7 The model is a developmental blend of the two developed for Tyers (2015a b, 2016), Tyers and Zhou (2017) and Zhou and Tyers (2017) . 8 Output and factor inputs are expressed relative to initial levels so that shocks to productivity or factor shares do not imply changes in initial output volumes. This facilitates the decomposition of technology shocks as between productivity and factor or input bias, though such shocks are not employed here.
doi:10.2139/ssrn.3328294 fatcat:a6osmmnsejhydoaecayqjcbtsa