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Economic integration is an agreement among countries in a geographical region or unification of economic policies between different states aiming to reduce and ultimately…
Economic integration is an agreement among countries in a geographical region or unification of economic policies between different states aiming to reduce and ultimately remove tariff and non-tariff barriers on trade. The fruit of globalization is the tremendous rise of economic integration as globalization loosens barriers among the nations through reduction in cross-border duties and eases trade policies. Trumponomics is defined as the economic policies of US President Donald Trump that prefers high import tariff to bring “America First.” There is a debate among the researchers about the choice between free trade and protection or imposition of tariff. Some of them prefer free trade because during the start of the great depression, the world economy experienced a huge shift toward protectionism. Choice between no-tariff and tariff represents a prisoner’s dilemma situation whereby each player’s best response is to employ tariffs. This results in a sub-optimal outcome for all where the total volume of world trade falls, which is a Nash solution. The present chapter deals with theoretical discussions on trade war and throws light on the developing country’s choice between non-protectionism supported by globalization and Trump’s protectionism.
Demonstrates the implications of imperfect substitutability betweendomestic and imported final goods for the determination of second‐bestnominal and effective tariffs in a…
Demonstrates the implications of imperfect substitutability between domestic and imported final goods for the determination of second‐best nominal and effective tariffs in a general equilibrium setting. The analysis of second‐best interventions for given policy distortions extends that by Ruffin and Casas on homogeneous goods to the case where there is product heterogeneity. The second‐best optimal effective rate of protection for given policy distortions is shown to depend upon the nature of the policy distortion and the degree of substitutability between imported and domestic varieties. Although imperfect substitution reduces the extent to which effective protection can be determined from the structure of protection, it increases the extent to which second best tariffs can be determined in a qualitative sense at least when compared with the traditional, perfect substitution case.
Trade war among the nations dates back mainly to the nineteenth century. Some of the trade wars may be cited as (i) The First and Second Opium War Empire between 1839 and…
Trade war among the nations dates back mainly to the nineteenth century. Some of the trade wars may be cited as (i) The First and Second Opium War Empire between 1839 and 1842; (ii) The Smoot-Hawley Tariff Act, 1930 signed by US President Herbert Hoover; (iii) Chicken wars in the early 1960s; (iv) The US–Japan automobile trade war in the 1980s; (v) 1985 Pasta War between America under the Regan Administration of United States and Europe; (vi) The Banana wars. However, trade becomes more intense in the present century with the increase of the economic trade instruments. Under the Obama Administration, currency war and tariff war both became strong between the United States and China with intense effect over the globe. After the Obama regime, came Donald John Trump with a number of controversial (aggressive) trade protectionism plans saying thereby “China’s accession to the World Trade Organization has enabled the greatest jobs theft in history” and “Trillions of our dollars and millions of our jobs flowed overseas as a result.” Even during the COVID-19 period in the 2020s, threats and counter-threats have been on the ascend. It is in this backdrop the present chapter mainly traces the history of trade wars in the twenty-first century, touching upon the nineteenth and twentieth century trade battles.
The chapter attempts to develop a micro-theoretic model to explain the genesis of trade war in light of the behavioral interdependence of two countries connected through…
The chapter attempts to develop a micro-theoretic model to explain the genesis of trade war in light of the behavioral interdependence of two countries connected through international trade and, thereof, it analyses its welfare implication with respect to the countries at feud. In this regard, it is important to mention that the evolution of trade war herein has been articulated in terms of the retaliation of one country as reaction to the one time-tariff imposition by the other. The fundamental takeaways are twofold. First, how evolution of tariff war can be articulated in light two-stage game governments are coming to decide on tariff policy a priori, followed by second-stage featuring firms being decisive on the production level and then the games repeats where governments again come up to introspects if the a priori tariff rates are compatible with welfare optimization to be followed up by firms. Second, the nature of the ultimate fallout of the tariff retaliation will depend crucially on how welfare function of each country is paced with the country’s tariff policy.
The present study deals with the growth performance of export (X), import (M), and economic growth (Y) in India over the period 1970–1971 to 2016–2017 as well as tariff…
The present study deals with the growth performance of export (X), import (M), and economic growth (Y) in India over the period 1970–1971 to 2016–2017 as well as tariff (TR) for the period 1990–2017 by employing the methodology of one-time endogenous structural break suggested by Zivot and Andrews (1992). Also, an attempt has been taken to examine the direction of causality between the above-mentioned trade-related variables and economic growth using Granger Causality Test. Results of estimation reveal that all the variables converge toward a stationarity process having constant variability overtime. There exists structural break in the year 1996, 2006, 2008, and 2010, respectively, for economic growth, tariff, imports, and exports. Bidirectional causality is found running from economic growth to tariff and from tariff to economic growth. But there is unidirectional causality from imports to tariff, imports to exports and from exports to tariff.
In the real world, developed countries are permitted to impose tariffs only on a small range of imports (partial tariff). For this reason, tariff policies have been…
In the real world, developed countries are permitted to impose tariffs only on a small range of imports (partial tariff). For this reason, tariff policies have been replaced in many countries by other policy devices such as a competition policy. This study compares a competition policy with a partial tariff policy. It demonstrates that if a country can impose a tariff on only a small part of the imports and at sufficiently low tariff rates, optimal partial tariff policy may not create as large a protective effect as optimal competition policy.
The promotion of low tariffs and free trade has been the underlying driver of global economic growth. The recent political developments in the United States and Great…
The promotion of low tariffs and free trade has been the underlying driver of global economic growth. The recent political developments in the United States and Great Britain calls into question, whether free trade will be supported by the governments of the industrialized world in the future. Shortly after being inaugurated in 2017, the President of the United States has repeatedly announced his plans to impose punitive tariffs on the import of foreign products in order to protect the country’s domestic economy. Besides a controversial border adjustment tax, he has frequently brought up the possibility of imposing a 35% tariff on automobile imports. The chapter aims to analyze the effects of such a tariff on trade in the automotive sector between the United States and Germany as well as on German automobile manufacturers. It takes a quantitative approach to draw a conclusion about the relationship between import tariffs on automobiles and passenger vehicle imports from Germany to the United States utilizing a fixed effects regression model based on panel data. The model finds a significant negative correlation between the examined variables, but even in a worst case scenario, German manufacturers are resilient to the predicted revenue losses caused by a tariff increase.
Applying a computable general equilibrium model to assess the impact of tariffs between the US and China, Taiwan stands to gain from trade diversion of the trade war…
Applying a computable general equilibrium model to assess the impact of tariffs between the US and China, Taiwan stands to gain from trade diversion of the trade war between the two largest world economies in the short term.
Initially, Taiwan suffered a minor loss from the sector-specific tariff on steel and aluminum imposed by the US. However, its loss is mitigated after counting counter measures from foreign countries. The cumulated US tariffs and China's retaliations led to trade diversion effect. Taiwan's initial loss from the steel and aluminum tariffs was over compensated by a series of trade war between the US and China.
Under the scenario of the cumulated tariffs of $250 billion of US imports and China's retaliations of $110 billion on US goods, the social welfare, exports, import and trade balance in Taiwan increased. Its terms of trade improved as well. Real wage increases slightly more for unskilled labor than for skilled labor. The short-term effect of the trade war has positive effect on all macro indicators of Taiwan's economy.
On sectoral shift, Taiwan's export will gain the most in precision engineering products ($2,941.6 million), followed by electronics ($310.7 million) and agricultural products ($31.3 million). The negative effects are in sectors such as business services ($58.323 million), other services ($46.9 million), transportation service ($36.6 million), trade service ($25.3 million), and finance service ($24.5 million). Taiwan's total imports will increase by 0.59%, whereas its total export will increase by 0.33%. However, total trade balance still increases by $451.1 million.
The study also finds that Taiwan has a high degree of overlapping export commodities with China in the US market, much higher than most major trading partners for the US, yet its market share for those products in the US is ranged from 1% to 5% only. Moreover, more than 60% of Taiwan's export to the US is in intermediate goods which have less product differentiation than those in final consumption goods. These two factors will provide an opportunity for Taiwan to exploit the US market.
Though the short-term effect of trade war is positive, Taiwan needs to have a long-range planning amid the external shocks. Policy implications for Taiwan are to map out a cosmopolitan view of its geo-strategy by diversifying outward foreign direct investment and trade destinations. It needs to reduce the “systemic risk” of relying on single market in China which is vulnerable to the uncertainty in the US–China relations. If the trade war lasts too long, Taiwan would need to reevaluate its triangular trade-investment nexus with China and the US as well as its role in the global supply chain.
This chapter applies the new heterogeneous firm CGE model of Caliendo and Parro (2009) to determine what the Ricardian gains are from changing partners for members of a…
This chapter applies the new heterogeneous firm CGE model of Caliendo and Parro (2009) to determine what the Ricardian gains are from changing partners for members of a trade bloc. We focus on the MERCOSUR case, using a model with 48 sectors and 5 countries. Motivated by recent policy discussions, we quantify Uruguay's trade and welfare effects from signing a Free Trade Agreement with the United States and leaving MERCOSUR. We find positive welfare effects for Uruguay from bilaterally reducing tariffs with the United States. Most of the gains come from having access to lower-cost intermediate inputs for production. We then consider the policy experiment of bilaterally eliminating tariffs between all members of MERCOSUR and the United States. We find that Uruguay has the largest gains, while Argentina and Brazil do not benefit much. This chapter also illustrates how new models are a promising tool for the analysis of trade.
Sustainability performance of the global trade as well as of the traded products are affected by the trade policies and trade tariffs. Trade tariffs and policies can…
Sustainability performance of the global trade as well as of the traded products are affected by the trade policies and trade tariffs. Trade tariffs and policies can either encourage or discourage trade among the countries affecting feasibility of trade. In other words, the scope and amount of these trade tariffs have impact on the trade globally. Based on an in-depth literature review, this chapter aims to examine impacts of the trade policies and trade tariffs on the environmental footprint of the global trade. With this aim, recent trade policies and trade tariffs as well as roles of the trade policies, trade tariffs in reducing environmental footprint of the global trade are examined. It arrives at the conclusion that trade tariffs can affect environmental footprint of the global trade as well as of the traded products. They can have impact on the feasibility of the trading activities influencing their profit margins and costs. Based on these findings, recommendations for trade policies and trade tariffs are thereby provided to enhance sustainability performance of the global trade.