IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v131y2021ics0022199620301343.html
   My bibliography  Save this article

The cost of a global tariff war: A sufficient statistics approach

Author

Listed:
  • Lashkaripour, Ahmad

Abstract

Tariff wars have reemerged as a serious threat to the global economy. Yet measuring the prospective cost of a global tariff war remains computationally prohibitive, unless we restrict attention to a small set of countries and industries. This paper develops a new methodology that measures the cost of a global tariff war in one simple step as a function of observable shares, industry-level trade elasticities, and markup wedges. Applying this methodology to data on 44 countries and 56 industries, I find that (i) the prospective cost of a global tariff war has more-than-doubled over the past fifteen years, with small downstream economies being the most vulnerable. (ii) Meanwhile, due to the rise of global markup distortions, the potential gains from cooperative tariff policies have also elevated to unprecedented levels.

Suggested Citation

  • Lashkaripour, Ahmad, 2021. "The cost of a global tariff war: A sufficient statistics approach," Journal of International Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:inecon:v:131:y:2021:i:c:s0022199620301343
    DOI: 10.1016/j.jinteco.2020.103419
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199620301343
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jinteco.2020.103419?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, vol. 97(2), pages 351-355, May.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    3. Raymond Riezman (ed.), 2013. "International Trade Agreements and Political Economy," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8386, October.
    4. Edward J. Balistreri & Christoph Böhringer & Thomas F. Rutherford, 2018. "Quantifying Disruptive Trade Policies," CESifo Working Paper Series 7382, CESifo.
    5. Michalopoulos,Constantine, 1999. "Trade policy and market access issues for developing countries : implications for the Millennium Round," Policy Research Working Paper Series 2214, The World Bank.
    6. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    7. Raj Chetty, 2009. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 451-488, May.
    8. Cecilia Bellora & Lionel Fontagné, 2019. "Shooting Oneself in the Foot? Trade War and Global Value Chains," Working Papers 2019-18, CEPII research center.
    9. Konstantin Kucheryavyy & Gary Lyn & Andrés Rodríguez-Clare, 2023. "Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 372-412, April.
    10. Marcel Timmer & Abdul A. Erumban & Reitze Gouma & Bart Los & Umed Temurshoev & Gaaitzen J. de Vries & I–aki Arto & Valeria Andreoni AurŽlien Genty & Frederik Neuwahl & JosŽ M. Rueda?Cantuche & Joseph , 2012. "The World Input-Output Database (WIOD): Contents, Sources and Methods," IIDE Discussion Papers 20120401, Institue for International and Development Economics.
    11. Cecilia Bellora & Lionel Fontagné, 2019. "Shooting Oneself in the Foot? Trade War and Global Value Chains," Working Papers 2019-18, CEPII research center.
    12. Lorenzo Caliendo & Robert C. Feenstra & John Romalis & Alan M. Taylor, 2015. "Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades," NBER Working Papers 21768, National Bureau of Economic Research, Inc.
    13. Ralph Ossa, 2014. "Trade Wars and Trade Talks with Data," American Economic Review, American Economic Association, vol. 104(12), pages 4104-4146, December.
    14. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    15. Barattieri, Alessandro & Cacciatore, Matteo & Ghironi, Fabio, 2021. "Protectionism and the business cycle," Journal of International Economics, Elsevier, vol. 129(C).
    16. Arnaud Costinot & Dave Donaldson & Jonathan Vogel & Iván Werning, 2015. "Comparative Advantage and Optimal Trade Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(2), pages 659-702.
    17. Carlo Perroni & John Whalley, 2000. "The new regionalism: trade liberalization or insurance?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(1), pages 1-24, February.
    18. Arnaud Costinot & Andrés Rodríguez‐Clare & Iván Werning, 2020. "Micro to Macro: Optimal Trade Policy With Firm Heterogeneity," Econometrica, Econometric Society, vol. 88(6), pages 2739-2776, November.
    19. John Kennan & Raymond Riezman, 2013. "Do Big Countries Win Tariff Wars?," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 4, pages 45-51, World Scientific Publishing Co. Pte. Ltd..
    20. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    21. Costas Arkolakis & Arnaud Costinot & Dave Donaldson & Andrés Rodríguez-Clare, 2019. "The Elusive Pro-Competitive Effects of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 46-80.
    22. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    23. Kyle Bagwell & Robert W. Staiger, 2004. "The Economics of the World Trading System," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524341, December.
    24. Mary Amiti & Stephen J. Redding & David E. Weinstein, 2019. "The impact of the 2018 trade war on US prices and welfare," CentrePiece - The magazine for economic performance 553, Centre for Economic Performance, LSE.
    25. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    26. Pablo D Fajgelbaum & Pinelopi K Goldberg & Patrick J Kennedy & Amit K Khandelwal, 2020. "The Return to Protectionism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 1-55.
    27. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2013. "Optimal tariffs, retaliation, and the welfare loss from tariff wars in the Melitz model," Journal of International Economics, Elsevier, vol. 89(1), pages 13-25.
    28. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 1-44.
    29. Ahmad Lashkaripour & Mostafa Beshkar, 2020. "The Cost of Dissolving the WTO: The Role of Global Value Chains," CAEPR Working Papers 2020-005 Classification-, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    30. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    31. Harry G. Johnson, 1953. "Optimum Tariffs and Retaliation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(2), pages 142-153.
    32. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    33. Opp, Marcus M., 2010. "Tariff wars in the Ricardian Model with a continuum of goods," Journal of International Economics, Elsevier, vol. 80(2), pages 212-225, March.
    34. Gros, Daniel, 1987. "A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade," Journal of International Economics, Elsevier, vol. 23(3-4), pages 357-367, November.
    35. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    36. repec:hal:spmain:info:hdl:2441/6apm7lruv088iagm4rv2c33jtg is not listed on IDEAS
    37. Ralph Ossa, 2016. "Quantitative Models of Commercial Policy," NBER Working Papers 22062, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jun Qian & Xiao Sun & Ziyang Wang & Yueting Chai, 2022. "Negative Feedback Punishment Approach Helps Sanctioning Institutions Achieve Stable, Time-Saving and Low-Cost Performances," Mathematics, MDPI, vol. 10(15), pages 1-16, August.
    2. Becko, John Sturm, 2024. "A theory of economic sanctions as terms-of-trade manipulation," Journal of International Economics, Elsevier, vol. 150(C).
    3. Livanis, Grigorios & Geringer, J. Michael, 2021. "Multi-stage strategic trade policy in a differentiated duopoly," Economics Letters, Elsevier, vol. 206(C).
    4. Siying Ding & Ahmad Lashkaripour & Volodymyr Lugovskyy, 2024. "A Global Perspective on the Incidence of Monopoly Distortions," CESifo Working Paper Series 11211, CESifo.
    5. Yuan Mei, 2024. "Regulatory Protection And The Role Of International Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 817-850, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    2. Inga Heiland, 2017. "Five Essays on International Trade, Factor Flows and the Gains from Globalization," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 74.
    3. Lorenzo Caliendo & Robert C. Feenstra & John Romalis & Alan M. Taylor, 2023. "Tariff Reductions, Heterogeneous Firms, and Welfare: Theory and Evidence for 1990–2010," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(4), pages 817-851, December.
    4. Chunding Li & John Whalley & Chuantian He & Chuangwei Lin, 2021. "The 2008 Financial Crisis and the Lack of Retaliatory Trade Intervention," CESifo Economic Studies, CESifo Group, vol. 67(1), pages 78-105.
    5. Nocco, Antonella & Ottaviano, Gianmarco I.P. & Salto, Matteo, 2019. "Geography, competition, and optimal multilateral trade policy," Journal of International Economics, Elsevier, vol. 120(C), pages 145-161.
    6. Pablo D Fajgelbaum & Pinelopi K Goldberg & Patrick J Kennedy & Amit K Khandelwal, 2020. "The Return to Protectionism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 1-55.
    7. Caliendo, Lorenzo & Feenstra, Robert C., 2024. "Foundation of the small open economy model with product differentiation," Journal of International Economics, Elsevier, vol. 150(C).
    8. Nelson Lind & Natalia Ramondo, 2023. "Trade with Correlation," American Economic Review, American Economic Association, vol. 113(2), pages 317-353, February.
    9. Rodrigo Adão & Costas Arkolakis & Federico Esposito, 2019. "General Equilibrium Effects in Space: Theory and Measurement," NBER Working Papers 25544, National Bureau of Economic Research, Inc.
    10. Ralph Ossa, 2016. "Quantitative Models of Commercial Policy," NBER Working Papers 22062, National Bureau of Economic Research, Inc.
    11. Arnaud Costinot & Dave Donaldson & Jonathan Vogel & Iván Werning, 2015. "Comparative Advantage and Optimal Trade Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(2), pages 659-702.
    12. Arnaud Costinot & Andrés Rodríguez‐Clare & Iván Werning, 2020. "Micro to Macro: Optimal Trade Policy With Firm Heterogeneity," Econometrica, Econometric Society, vol. 88(6), pages 2739-2776, November.
    13. Kohler Wilhelm & Jung Benjamin, 2017. "Wie vorteilhaft ist internationaler Handel?: Ein neuer Ansatz zur Vermessung der Gewinne," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(1), pages 32-55, April.
    14. Demidova, Svetlana, 2017. "Trade policies, firm heterogeneity, and variable markups," Journal of International Economics, Elsevier, vol. 108(C), pages 260-273.
    15. Caliendo, Lorenzo & Feenstra, Robert C. & Romalis, John & Taylor, Alan M., 2023. "A second-best argument for low optimal tariffs on intermediate inputs," Journal of International Economics, Elsevier, vol. 145(C).
    16. Cappariello, Rita & Franco-Bedoya, Sebastian & Gunnella, Vanessa & Ottaviano, Gianmarco I. P., 2020. "Rising protectionism and global value chains: quantifying the general equilibrium effects," LSE Research Online Documents on Economics 108423, London School of Economics and Political Science, LSE Library.
    17. Sanyal, Anirban, 2023. "Caught in the Crossfire: How Trade Policy Uncertainty Impacts Global Trade," EconStor Preprints 272825, ZBW - Leibniz Information Centre for Economics.
    18. Pinelopi K. Goldberg & Nina Pavcnik, 2016. "The Effects of Trade Policy," NBER Working Papers 21957, National Bureau of Economic Research, Inc.
    19. Treb Allen & Costas Arkolakis & Yuta Takahashi, 2020. "Universal Gravity," Journal of Political Economy, University of Chicago Press, vol. 128(2), pages 393-433.
    20. Alexander, Patrick D. & Keay, Ian, 2018. "A general equilibrium analysis of Canada’s national policy," Explorations in Economic History, Elsevier, vol. 68(C), pages 1-15.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:131:y:2021:i:c:s0022199620301343. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.