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The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism

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  • Agur Itai

    (Dutch Central Bank and European University Institute)

Abstract

This paper argues that the growing US trade deficit has caused the decline of the WTO and the rise of regional trade agreements. Growing imbalances make countries more selective about who to cooperate with. This is formally shown in a three-country negotiation game that is based on a goods-market model. Subsequently, the model is parameterized and applied quantitatively. Using historical data, the model correctly predicts the date that US-Canada FTA talks began. Based on current data, moreover, the model paints a bleak picture for multilateralism: US exports to China would have to triple for a new WTO round to stand a chance. But even this may be insufficient: a dynamic extension of the game shows that regionalism can have a lock-in effect. Nonetheless, this does not plead for tougher WTO rules on regionalism. As is argued both qualitatively and quantitatively, these may push countries to less, not more, cooperation.

Suggested Citation

  • Agur Itai, 2008. "The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism," Global Economy Journal, De Gruyter, vol. 8(3), pages 1-34, September.
    • Handle: RePEc:bpj:glecon:v:8:y:2008:i:3:n:4
    DOI: 10.2202/1524-5861.1381
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    References listed on IDEAS

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    Cited by:

    1. Kyle Bagwell & Robert W. Staiger, 2009. "The WTO: Theory and Practice," NBER Working Papers 15445, National Bureau of Economic Research, Inc.
    2. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    3. Lloyd , Peter, 2013. "Multilateralism is in Crisis," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 8(2), pages 67-102, April.
    4. Peter Lloyd, 2012. "Multilateralism in Crisis," ARTNeT Working Papers 114, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    5. Grahame Thompson, 2011. "Financial Globalization? History, Conditions and Prospects," Chapters, in: Jonathan Michie (ed.), The Handbook of Globalisation, Second Edition, chapter 2, Edward Elgar Publishing.
    6. Jorge Luis Sanchez Arevalo & Edgard Monforte Merlo, 2020. "Social-economic Analysis of Physical Integration between Brazil and Peru: Focus for the Regions Linked to the Interoceanic Highway," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 102-110.
    7. Staiger, Robert W. & Sykes, Alan O., 2010. "‘Currency manipulation’ and world trade," World Trade Review, Cambridge University Press, vol. 9(4), pages 583-627, October.

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