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Shooting oneself in the foot? US trade policy coping with Global Value Chains

Author

Listed:
  • Lionel Fontagné

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Cecilia Bellora

Abstract

Since the beginning of 2018, the US administration has announced and implemented several measures limiting US trade, in particular with China. This has fueled retaliation and has escalated in high trade tensions at the global level. We address in this paper the effects of the current trade tensions on trade, sectoral value added and welfare, in General Equilibrium under imperfect competition. We rely on a set-up differentiating demand of goods according to their use, for final or intermediate consumption. This authorizes tracing the impact of protection, along the value chains, on prices, value added and factor income. Additional tariffs from official lists are averaged at the 6 digit level of the Harmonized System (HS6), before being aggregated at the sector level with a reference group weighted method. Negotiated quantities in Voluntary Export Restraints are also taken into account at the product level. Beyond the direct toll of sanctions, US exports to the world post a 7.5% decrease as a result of reduced competitiveness led by vertical linkages along the value chains. Because of the measures in place as of August 2019, three quarters of the sectors decrease their value added in the US, suggesting that with this tariff war the US are shooting themselves in the foot. The quantification of job destructions and creations in the different sectors is consistent with effects channeling through prices and demand along the value chains detrimental to downstream industries.
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Suggested Citation

  • Lionel Fontagné & Cecilia Bellora, 2019. "Shooting oneself in the foot? US trade policy coping with Global Value Chains," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-02128135, HAL.
  • Handle: RePEc:hal:cesptp:hal-02128135
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02128135
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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