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The 2008 Financial Crisis and the Lack of Retaliatory Trade Intervention

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Listed:
  • Chunding Li
  • John Whalley
  • Chuantian He
  • Chuangwei Lin

Abstract

The 2008 financial crisis did not precipitate global retaliatory trade intervention, in seeming contrast to the Great Depression in 1930s. This article discusses the influence of model structure in optimal tariff (OT) calculations in explaining this puzzle. We emphasize how earlier literature reports high OTs in numerical calculation (of a hundred percent) but only uses simple trade models. We use numerical general equilibrium (GE) calibration and simulation methodology to calculate OTs both with and without retaliation in a series of observationally equivalent models and explore the influence of model structures on OT levels. We gradually add more realistic features into the basic GE model, and show sharply declined OTs, which suggests that trade retaliation incentives effectively disappear with the deepening of globalization in 2008 compared to 1930. (JEL codes: F11, C63, F13).

Suggested Citation

  • 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.
    • Handle: RePEc:oup:cesifo:v:67:y:2021:i:1:p:78-105.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifaa012
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    More about this item

    Keywords

    optimal tariffs; general equilibrium; model structure; trade liberalization;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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