Chapter 9: 21st Century Trade Wars
We use the Global Trade Analysis Project (GTAP) data in a GTAP-in-GAMS framework to calculate the economic effects of trade policies proposed by candidate Donald Trump in his successful campaign to become President of the United States. We calibrate a multi-sector multi-regional equilibrium with Melitz (2003) technologies in the manufacturing and business services sectors. We calculate optimal bilateral tariffs against China and Mexico and consider their optimal responses. In a more detailed look at Mexico we consider the 35% US tariff on Mexican imports that Trump proposed during the campaign, and the 20% tariff on Mexican imports that was suggested shortly after he took office. We model optimal Mexican responses as well as responses that would be consistent with its World Trade Organization disciplines.