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Trade Wars: What do they Mean? Why are they Happening Now? What are the Costs?

Author

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  • Aaditya Mattoo
  • Robert W. Staiger
Abstract
How should economists interpret current trade wars and the recent U.S. trade actions that have initiated them? In this paper we offer an interpretation of current U.S. trade actions that is at once more charitable and less forgiving than that typically offered by economic commentators. More charitable, because we argue that it is possible to see a logic to these actions: the United States is initiating a change from “rules-based” to “power-based” tariff bargaining and is selecting countries with which it runs bilateral trade deficits as the most suitable targets of its bargaining tariffs. Less forgiving, because the main costs of these trade tactics cannot be avoided even if they happen to “work” and deliver lower tariffs. Rather, we show that the main costs will arise from the use of the tactics themselves, and from the damage done by those tactics to the rules-based multilateral trading system and the longer-term interests of the United States and the rest of the world.

Suggested Citation

  • Aaditya Mattoo & Robert W. Staiger, 2019. "Trade Wars: What do they Mean? Why are they Happening Now? What are the Costs?," NBER Working Papers 25762, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25762
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    References listed on IDEAS

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    1. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, and International Economic Institutions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(2), pages 519-562.
    2. Winters, L Alan, 1984. "British Imports of Manufactures and the Common Market," Oxford Economic Papers, Oxford University Press, vol. 36(1), pages 103-118, March.
    3. Goldstein, Judith & Gowa, Joanne, 2002. "US national power and the post-war trading regime," World Trade Review, Cambridge University Press, vol. 1(2), pages 153-170, July.
    4. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    5. Kyle Bagwell & Robert W. Staiger, 2016. "The Design of Trade Agreements," NBER Working Papers 22087, National Bureau of Economic Research, Inc.
    6. McLaren, John, 1997. "Size, Sunk Costs, and Judge Bowker's Objection to Free Trade," American Economic Review, American Economic Association, vol. 87(3), pages 400-420, June.
    7. Kyle Bagwell & Robert W. Staiger & Ali Yurukoglu, 2021. "Quantitative Analysis of Multiparty Tariff Negotiations," Econometrica, Econometric Society, vol. 89(4), pages 1595-1631, July.
    8. Eric W. Bond & Jee-Hyeong Park, 2002. "Gradualism in Trade Agreements with Asymmetric Countries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(2), pages 379-406.
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    Cited by:

    1. Andrew Muhammad & Stephen A. Smith & Jason H. Grant, 2022. "Can China meet its purchase obligations under the Phase One Trade Agreement?," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(3), pages 1393-1408, September.
    2. Ben Zissimos, 2022. "The End of the End of History: A Political-Economy Perspective," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(6), pages 372-376, November.
    3. John C. Beghin & Heidi Schweizer, 2021. "Agricultural Trade Costs," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 500-530, June.
    4. Gabriel Felbermayr & Eckhard Janeba, 2024. "FIW-PB 62 Improving Supply Security - Guidelines and Policy Proposals," FIW Policy Brief series 62, FIW.
    5. Escaith, Hubert, 2021. "Withering globalization? The Global Value Chain effects of trade decoupling," MPRA Paper 107935, University Library of Munich, Germany.
    6. Jakubik, Adam & Keck, Alexander & Piermartini, Roberta, 2022. "Trade policy implications of a changing world: Tariffs and import market power," WTO Staff Working Papers ERSD-2022-14, World Trade Organization (WTO), Economic Research and Statistics Division.
    7. Fiorentini, Riccardo, 2020. "The Persisting US Trade Deficit: Is Protectionistm the Right Answer?," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(2), pages 155-186.
    8. Wendong Zhang, 2021. "The Case for Healthy U.S.‐China Agricultural Trade Relations despite Deglobalization Pressures," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(1), pages 225-247, March.
    9. Jason H. Grant & Kathryn A. Boys & Chaoping Xie, 2021. "A new president in the White House: implications for Canadian agricultural trade," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(1), pages 45-58, March.
    10. Felbermayr Gabriel & Janeba Eckhard, 2024. "Improving Supply Security: Guidelines and Policy Proposals," Intereconomics: Review of European Economic Policy, Sciendo, vol. 59(3), pages 146-153.
    11. Carlos Caceres & Mr. Diego A. Cerdeiro & Rui Mano, 2019. "Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model," IMF Working Papers 2019/143, International Monetary Fund.
    12. Jie Wu & Chan‐Guk Huh & Jacob Wood, 2021. "Globally chained economies, unwitting victims of the US‐China trade war," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(2), pages 60-76, November.
    13. Anderson, Kym, 2022. "Trade-related food policies in a more volatile climate and trade environment," Food Policy, Elsevier, vol. 109(C).
    14. Ojo, Marianne, 2019. "Facilitating Artificial Intelligence and block chain systems, partnerships and technologies: emerging global actors and players in Sustainable Development," MPRA Paper 94210, University Library of Munich, Germany.
    15. Ian M. Sheldon, 2022. "The United States' power‐based bargaining and the WTO: Has anything really been gained?," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(3), pages 1424-1439, September.
    16. Jie Wu & Jacob Wood & Keunyeob Oh & Haejin Jang, 2021. "Evaluating the cumulative impact of the US–China trade war along global value chains," The World Economy, Wiley Blackwell, vol. 44(12), pages 3516-3533, December.
    17. Glazatova, M. & Daniltsev, A., 2020. "Main trends in the development of world trade and structural features of Russian exports," Journal of the New Economic Association, New Economic Association, vol. 45(1), pages 183-192.

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    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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