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The impact of a U.S.–U.K. free trade agreement on workers: a CGE model with worker displacement

Author

Listed:
  • Jeff Ferry

    (Coalition for a Prosperous America)

  • Badri Narayanan Gopalakrishnan

    (Infinite Sum Modelling LLC)

  • Amanda Mayoral

    (Coalition for a Prosperous America)

Abstract

On May 5, 2020, the U.S. Trade Representative announced plans to negotiate a free trade agreement with the United Kingdom (USUKFTA). We use GTAP to model the economic impacts of such a free trade agreement. We also develop a modified GTAP model that includes worker displacement to incorporate unemployment generated by the free trade agreement into the model. We find that a standard GTAP model leads to a very small improvement in economic conditions for both countries, but more for the U.K. than the U.S.A. Our worker displacement model shows a small negative impact to employment for both countries and a negative effect on GDP for the U.S.A. It is unusual for a trade model to show a negative impact on GDP or employment from adoption of a free trade agreement. Our results suggest that worker displacement is an important impact of trade agreements. Our results also explain the industry-specific effects of a USUKFTA. We find that the manufacturing sector is behind most changes in output and the trade balance for both models. In particular, the U.S. transportation equipment and Computer/electrical sectors suffer the most, while the U.K. suffers more from a decline in service sectors.

Suggested Citation

  • Jeff Ferry & Badri Narayanan Gopalakrishnan & Amanda Mayoral, 2022. "The impact of a U.S.–U.K. free trade agreement on workers: a CGE model with worker displacement," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 57(3), pages 121-138, July.
    • Handle: RePEc:pal:buseco:v:57:y:2022:i:3:d:10.1057_s11369-022-00268-1
    DOI: 10.1057/s11369-022-00268-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Industrial organization; Computable general equilibrium models; Trade policy; Trade simulation; Labor mobility;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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