## Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model

_IMF Working Papers, July 3, 2019_

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**Canonical URL:** [Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model](https://www.imf.org/en/publications/wp/issues/2019/07/03/trade-wars-and-trade-deals-estimated-effects-using-a-multi-sector-model-46964)

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## Bibliographic details
- Authors: Carlos Caceres, Diego A. Cerdeiro, Rui Mano
- Published: July 3, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498318440.001

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### Overview
- Study uses a multi-sector computable general equilibrium (CGE) trade model calibrated to 165 countries.
- Analyzes three illustrative scenarios to estimate potential long-term effects of trade policy changes.
- Emphasis on sectoral disruptions, spillovers to exposed ‘by-stander’ economies, and heterogeneity at the subnational level.

### Scenarios analyzed
- Three scenarios:
  - Potential U.S. auto tariffs.
  - A ‘transactional deal’ between the U.S. and China to close their bilateral deficit.
  - A potential escalation in bilateral tariffs between the U.S. and China in the absence of such a deal.

### Key findings
- Overall effects on GDP tend to be relatively small albeit negative in most cases, including for the U.S.
- Sectoral disruptions can be large.
- Positive and negative spillovers to highly exposed ‘by-stander’ economies can be large.
- Heterogeneity at the subnational level in the U.S.: richer states tend to benefit from certain scenarios.
- Estimated impacts depend on the extent to which the U.S. is able to re-shore production in protected sectors.
- Results can usefully complement estimates obtained through macroeconomic models that better capture dynamic effects, such as those stemming from trade policy uncertainty.
- Results underscore the value of adhering to the existing levels of liberalization, and highlight the risks associated with a fragmentation or even a complete breakdown of the trading system.

### Policy implications and discussion points
- Consider trade policy uncertainty and dynamic macroeconomic effects alongside static CGE estimates.
- Evaluate the capacity and costs of re-shoring production when designing protectionist measures.
- Monitor sectoral exposure and by-stander economy vulnerabilities when negotiating or implementing tariffs.
- Preserve existing levels of liberalization to reduce risks from fragmentation or breakdown of the trading system.

*Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model, Carlos Caceres, Diego A. Cerdeiro, Rui Mano, July 3, 2019.*

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2019/07/03/trade-wars-and-trade-deals-estimated-effects-using-a-multi-sector-model-46964_