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The economics of revoking NAFTA

Author

Listed:
  • Raphael Auer
  • Barthélémy Bonadio
  • Andrei A Levchenko

Abstract

In a world economy interconnected by global value chains (GVCs), domestic productivity depends on the availability of imported inputs and the vast majority of workers stands to lose from protectionism. To exemplify this, we provide a quantitative assessment of the aggregate and distributional effects of one hypothetical protectionist measure - the case of revoking the North American Free Trade Agreement (NAFTA). Using a multi-country, multi-sector, quantitative model of global production, we show that a full revocation extending to both tariffs and non-tariff trade barriers would result in a real annual GDP loss of US$ 37 billion in Canada, US$ 22 billion in Mexico, and US$ 40 billion in the USA. In contrast, annual combined losses would amount to less than US$ 5 billion if only tariff rates were to be increased. For both counterfactuals, the distributional impacts across sectors would be an order of magnitude larger than the aggregate effects. Combining these results with information on the geographic distribution of sectoral employment, we show that almost all regions in North America would record reductions in their average real wage.

Suggested Citation

  • Raphael Auer & Barthélémy Bonadio & Andrei A Levchenko, 2018. "The economics of revoking NAFTA," BIS Working Papers 739, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:739
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    References listed on IDEAS

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    Cited by:

    1. Peter A.G. van Bergeijk, 2019. "Deglobalization 2.0," Books, Edward Elgar Publishing, number 18560.

    More about this item

    Keywords

    NAFTA; quantitative trade models; distributional effects; protectionism;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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