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A New Modeling Approach to Help Address the Trump Tariffs

Author

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  • Charles Yuji Horioka

    (Center for Computational Social Science and Research Institute for Economics and Business Administration, Kobe University, Asian Growth Research Institutem, Institute of Social and Economic Research, Osaka University, Asian Growth Research Institute, JAPAN, and National Bureau of Economic Research, U.S.A.)

  • Nicholas Ford

    (Wolfson College, University of Cambridge, U.K.)

Abstract

In this paper, we show that the existing models and descriptions of the transfer of capital between countries that are provided in international economics are inadequate because they fail to explain the causes of, or the consequences of, persistent trade imbalances and because the assumption that there is a world interest rate, r* at which all countries can theoretically lend or borrow is extremely misleading.Instead, we argue that a more fruitful modeling approach is to regard the world as consisting of a number of regions, each of which has a particular rate of return on capital, which is a function of the local marginal product of capital (MPK). We demonstrate that such a modeling approach can provide some additional insights into who gains and loses from persistent trade deficits and how this might be affected by the Trump Administration's tariff policy.

Suggested Citation

  • Charles Yuji Horioka & Nicholas Ford, 2025. "A New Modeling Approach to Help Address the Trump Tariffs," Discussion Paper Series DP2025-31, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2025-31
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2025-31.pdf
    File Function: First version, 2025
    Download Restriction: no
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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