{
  "title": "Trade Balances Mostly Driven by Economic Forces, Not Tariffs",
  "publication": "IMF Blog, July 10, 2019",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2019/07/10/blog-trade-balances-mostly-driven-by-economic-forces-not-tariffs",
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  "summary": "Over the past two decades, most of the changes in bilateral trade balances were explained by macroeconomic factors.",
  "sections": [
    {
      "heading": "Key findings from IMF research",
      "content": "- Over the past two decades, most of the changes in bilateral trade balances were explained by macroeconomic factors.\n- Macroeconomic factors include fiscal policy, demographics, and weak domestic demand; they may also include exchange rate policies and domestic supply-side policies, like subsidies to state-owned enterprises or to export sectors.\n- Changes in tariffs played a much smaller role in influencing bilateral trade balances.\n- The April World Economic Outlook chart quantifies contributions of: macroeconomic factors, tariffs, and production organization (the sectoral composition of countries’ production and demand) to changes in bilateral trade balances.\n- Examples from the figure:\n  - Macroeconomic factors accounted for about 20 percent of the change in the US-Germany trade balance from 1995 to 2015.\n  - Macroeconomic factors accounted for over 95 percent of the change in the US-China trade balance from 1995 to 2015.\n- Reciprocal tariff reductions offsetting each other and already low tariff levels in many countries help explain the small role of tariffs.\n- Imposing a bilateral tariff on a trading partner is ineffective to address aggregate trade imbalances because consumers can switch demand to other trading partners that face no tariffs.\n- Increases in tariffs would particularly hurt output, jobs, and productivity.\n- The integrated nature of the current global trade system implies a sharp increase in tariffs would create ripple effects across countries and leave the world economy worse off."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Continue to promote free and fair trade by undoing recently enacted tariffs and enhancing efforts to reduce existing barriers to trade.\n- Avoid policies that distort the economy, such as:\n  - governments stimulating the economy with additional spending when demand is already strong, or\n  - heavily subsidizing exporting sectors,\n  that create excessive—and possibly unsustainable—imbalances.\n\nSource: IMF blog post “Trade Balances Mostly Driven by Economic Forces, Not Tariffs”, The Editors, July 10, 2019.\n\n---\n\n\n References\n\n- Português\n- World Economic Outlook\n- https://www.imf.org/wp-content/uploads/2019/07/econforces.png\n\nSource: https://www.imf.org/en/blogs/articles/2019/07/10/blog-trade-balances-mostly-driven-by-economic-forces-not-tariffs"
    }
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    "Authors: The Editors",
    "Published: July 10, 2019",
    "Over the past two decades, most of the changes in bilateral trade balances were explained by macroeconomic factors.",
    "Macroeconomic factors include fiscal policy, demographics, and weak domestic demand; they may also include exchange rate policies and domestic supply-side policies, like subsidies to state-owned enterprises or to export sectors.",
    "Changes in tariffs played a much smaller role in influencing bilateral trade balances.",
    "The April World Economic Outlook chart quantifies contributions of: macroeconomic factors, tariffs, and production organization (the sectoral composition of countries’ production and demand) to changes in bilateral trade balances.",
    "Examples from the figure:",
    "Reciprocal tariff reductions offsetting each other and already low tariff levels in many countries help explain the small role of tariffs.",
    "Imposing a bilateral tariff on a trading partner is ineffective to address aggregate trade imbalances because consumers can switch demand to other trading partners that face no tariffs.",
    "Increases in tariffs would particularly hurt output, jobs, and productivity.",
    "The integrated nature of the current global trade system implies a sharp increase in tariffs would create ripple effects across countries and leave the world economy worse off.",
    "Continue to promote free and fair trade by undoing recently enacted tariffs and enhancing efforts to reduce existing barriers to trade.",
    "Avoid policies that distort the economy, such as:",
    "[Português](http://www.imf.org/pt/News/Articles/2019/07/10/blog-trade-balances-mostly-driven-by-economic-forces-not-tariffs)",
    "[World Economic Outlook](https://www.imf.org/en/publications/weo)",
    "[https://www.imf.org/wp-content/uploads/2019/07/econforces.png](https://www.imf.org/wp-content/uploads/2019/07/econforces.png)"
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