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Trade and Prosperity Effects of a “Zero Solution”- Abolishing EU and US Import Tariffs in the Automotive Sector

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  • Benjamin Jung
  • Timo Walter

Abstract

In the trade conflict between the EU and the USA the European Commission’s President, Jean-Claude Juncker, and US President Donald Trump agreed on a gradual reduction of tariffs in all sectors, with the exception of the automotive sector, at the end of July 2018. Less than three weeks previously, however, propositions had been floated to completely abolish tariffs. What would be the trade and prosperity effects of such a zero solution for Germany, the rest of the EU and the USA? Using a quantitative trade model Benjamin Jung and Timo Walter, University of Hohenheim, calculate these effects for three scenarios: scenario 1 assumes that Germany enjoys autonomy in its trade policy, meaning that a zero solution in the automotive sector can be bilaterally agreed by Germany and the USA. In scenario 2 auto tariffs between the USA and all EU member states are reduced to zero. In the third scenario the EU and the USA eliminate their tariffs in the automotive sector for all WTO members. Their simulations show that Germany, the EU and the USA stand to benefit the most in the third scenario. It would be less advantageous for Germany and the USA, or the EU and the USA, to go it alone.

Suggested Citation

  • Benjamin Jung & Timo Walter, 2018. "Trade and Prosperity Effects of a “Zero Solution”- Abolishing EU and US Import Tariffs in the Automotive Sector," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(15), pages 26-29, August.
    • Handle: RePEc:ces:ifosdt:v:71:y:2018:i:15:p:26-29
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    References listed on IDEAS

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    1. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    2. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    3. Rahel Aichele & Gabriel Felbermayr & Inga Heiland & Gabriel J. Felbermayr, 2014. "Going Deep: The Trade and Welfare Effects of TTIP," CESifo Working Paper Series 5150, CESifo.
    4. Martin Braml & Gabriel Felbermayr & Wolfgang Weiß & Fritz Breuss & Christoph Scherrer & Christoph Herrmann & Caroline Glöckle & Benjamin Jung & Tim Krieger & Laura Renner & Bernd Lange, 2018. "Trade War and Its Implications: the Beginning of the End for WTO?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(11), pages 03-29, June.
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    Cited by:

    1. Timo Walter, 2022. "Trade and welfare effects of a potential free trade agreement between Japan and the United States," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(4), pages 1199-1230, November.

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