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Global adjustment to US disengagement from the world trading system

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  • Robinson, Sherman
  • Thierfelder, Karen

Abstract

US trade policy in the Trump administration is protectionist, raising tariffs outside of WTO rules, threatening trade wars, withdrawing from existing trade agreements, and negotiating new bilateral trade deals rather than free trade agreements. The reaction of the rest of the world has been to support the WTO rules-based trading system and to pursue new and expanded regional trade agreements that do not include the US. The result may be US disengagement from the world trading system, with countries diverting trade around the US. We use a global computable general equilibrium (CGE) model to analyze changes in trade and production patterns for a variety of scenarios, including US trade wars. We find that adjustment to US disengagement is feasible—the changes in trade shares as countries divert trade are modest and achievable, with very little impact on the volume of global trade. If the US engages in trade wars with major partners, the best response for other trade partners is to sit out the trade war, accept higher US tariffs, and gain markets from global trade diversion around the US. Finally, because of indirect effects, widespread tariffs fail to benefit the protected sectors—a fallacy of composition in a protectionist trade policy.

Suggested Citation

  • Robinson, Sherman & Thierfelder, Karen, 2019. "Global adjustment to US disengagement from the world trading system," Journal of Policy Modeling, Elsevier, vol. 41(3), pages 522-536.
    • Handle: RePEc:eee:jpolmo:v:41:y:2019:i:3:p:522-536
    DOI: 10.1016/j.jpolmod.2019.03.019
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    References listed on IDEAS

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    Cited by:

    1. Mon, Yi Yi & Kakinaka, Makoto, 2020. "Regional trade agreements and income inequality: Are there any differences between bilateral and plurilateral agreements?," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 136-153.
    2. Bekkers, Eddy, 2019. "Challenges to the trade system: The potential impact of changes in future trade policy," Journal of Policy Modeling, Elsevier, vol. 41(3), pages 489-506.
    3. Maria Alina Carataș & Elena Cerasela Spătariu, 2019. "Global Economy Under Trade War," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 63-66, August.
    4. Métivier, Jeanne & Bacchetta, Marc & Bekkers, Eddy & Koopman, Robert Bernard, 2023. "International trade cooperation's impact on the world economy," WTO Staff Working Papers ERSD-2023-02, World Trade Organization (WTO), Economic Research and Statistics Division.
    5. He, Ling-Yun & Lin, Xi & Zhang, ZhongXiang, 2020. "The impact of de-globalization on China’s economic transformation: Evidence from manufacturing export," Journal of Policy Modeling, Elsevier, vol. 42(3), pages 628-660.
    6. Robinson, Sherman & Thierfelder, Karen, 2019. "Regional Integration and Global Response to US Protectionism," Conference papers 333116, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Shantayanan Devarajan & Delfin S. Go & Csilla Lakatos & Sherman Robinson & Karen Thierfelder, 2021. "Traders' dilemma: Developing countries' response to trade wars," The World Economy, Wiley Blackwell, vol. 44(4), pages 856-878, April.
    8. Devarajan, Shanta & Go, Delfin S. & Robinson, Sherman & Thierfelder, Karen, 2022. "The Role of Trade Policy in Climate Mitigation: Carbon Border Adjustment Mechanism (CBAM)," Conference papers 333494, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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