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Trade Wars and Trade Talks with Data

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  • Ralph Ossa
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    Abstract

    How large are optimal tariffs? What tariffs would prevail in a worldwide trade war? How costly would be a breakdown of international trade policy cooperation? And what is the scope for future multilateral trade negotiations? I address these and other questions using a unified framework which nests traditional, new trade, and political economy motives for protection. I find that optimal tariffs average 62 percent, world trade war tariffs average 63 percent, the government welfare losses from a breakdown of international trade policy cooperation average 2.9 percent, and the possible government welfare gains from future multilateral trade negotiations average 0.5 percent. Optimal tariffs are tariffs which maximize a political economy augmented measure of real income.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17347.

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    Date of creation: Aug 2011
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    Publication status: published as “Trade Wars and Trade Talks with Data” American Economic Review, forthcoming
    Handle: RePEc:nbr:nberwo:17347

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    1. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1135-1155, December.
    2. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
    3. Samuel Kortum & Jonathan Eaton & Robert Dekle, 2007. "Unbalanced Trade," 2007 Meeting Papers, Society for Economic Dynamics 921, Society for Economic Dynamics.
    4. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 215-248, March.
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    8. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 2032-65, December.
    9. Kyle Bagwell & Robert W. Staiger, 2009. "Delocation and Trade Agreements in Imperfectly Competitive Markets," NBER Working Papers 15444, National Bureau of Economic Research, Inc.
    10. Kyle Bagwell & Robert W. Staiger, 2011. "What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization," American Economic Review, American Economic Association, American Economic Association, vol. 101(4), pages 1238-73, June.
    11. Carlo Perroni & John Whalley, 1994. "The New Regionalism: Trade Liberalization or Insurance?," NBER Working Papers 4626, National Bureau of Economic Research, Inc.
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    13. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 1741-1779, September.
    14. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
    15. Hamilton, Bob & Whalley, John, 1983. "Optimal tariff calculations in alternative trade models and some possible implications for current world trading arrangements," Journal of International Economics, Elsevier, Elsevier, vol. 15(3-4), pages 323-348, November.
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    Cited by:
    1. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Munich Reprints in Economics, University of Munich, Department of Economics 20591, University of Munich, Department of Economics.
    2. Stephen J. Redding, 2012. "Goods Trade, Factor Mobility and Welfare," CEP Discussion Papers dp1140, Centre for Economic Performance, LSE.
    3. Martín Tobal & Last: Tobal, 2012. "Profit-shifting and Welfare Enhancing Trade Protection: An Incomplete Contracts Model," Documentos de Investigación - Research Papers, Centro de Estudios Monetarios Latinoamericanos, CEMLA 4, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    4. Ralph Ossa, 2012. "Why Trade Matters After All," NBER Working Papers 18113, National Bureau of Economic Research, Inc.
    5. Aichele, Rahel, 2013. "Carbon Leakage with Structural Gravity," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80011, Verein für Socialpolitik / German Economic Association.

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