Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/205305
Authors: 
Bolt, Wilko
Mavromatis, Kostas
van Wijnbergen, Sweder
Year of Publication: 
2
Series/Report no.: 
Tinbergen Institute Discussion Paper TI 2019-015/VIII
Abstract: 
We study the global macroeconomic effects of tariffs using a multiregional, general equilibrium model, EAGLE, that we extend by introducing US tariffs against Chinese imports into the US, and subsequently Chinese tariffs against US imports into China, consistent with recent trade policies by the US and the Chinese governments. We abstract from tariffs on goods exported from the euro area, focusing on a US-China trade war. A unilateral tariff from the US against China dampens US exports in line with the Lerner Symmetry theorem but global output contracts. Global output contracts even further after China retaliates. The euro area benefits from this trade war. These European trade diversion benefits are caused by cheaper imports from China and improved competitiveness in the US. As price stickiness in the export sector in each region increases, the negative effects of tariffs in the US and China are mitigated, but the positive effects in the euro area are then also dampened.
Subjects: 
Trade Policy
Exchange Rates
Trade Diversion
Local Currency Pricing
JEL: 
E32
F30
H22
Document Type: 
Working Paper

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