A quantitative analysis of trade policy cooperation scenarios

We present four stylized scenarios for the future of global trade policy cooperation: (i) Restructuring, (ii) Geo-Fragmentation; (iii) Breakdown; (iv) Reform. The four scenarios include different trajectories of tariffs, trade policy uncertainty, operational trade costs, and digital trade policies. A quantitative trade model is employed to simulate the long-run economic impacts on trade, output, production structure, and welfare. The simulations show that there is a lot at stake. Whereas a breakdown of global trade policy cooperation can lead to almost double-digit economic losses, reform scenarios can substantially raise global GDP (by 2%-3%). Restructuring and Geo-Fragmentation would reduce global GDP substantially by respectively about -1% and -6%. For most economies, Reform generates better welfare outcomes than Restructuring. There is large variation in economic effects across regions, and outcomes vary between regions across scenarios.