When Elephants Make Peace
Should the China-U.S. trade agreement prompt relief because it averts a damaging trade war or concern because selective preferential access for the United States to China's markets breaks multilateral rules against discrimination? The answer depends on how China implements the agreement. Simulations from a computable general equilibrium model suggest that the United States and China would be better off under this "managed trade" agreement than if the trade war had escalated. However, compared with the policy status quo, the deal will make everyone worse off except the United States and its input-supplying neighbor, Mexico. Real incomes in the rest of world would decline by 0.16 percent and in China by 0.38 percent because of trade diversion. China can reverse those losses if, instead of granting the United States privileged entry, it opens its market for all trading partners. Global income would be 0.6 percent higher than under the managed trade scenario, and China's income would be nearly 0.5 percent higher. By creating a stronger incentive for China to open its markets to all, an exercise in bilateral mercantilism has the potential to become an instrument for multilateral liberalization.
| Main Authors: | , , , |
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| Format: | Working Paper biblioteca |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020-03
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| Subjects: | TRADE WAR, MANAGED TRADE, PREFERENTIAL TRADE AGREEMENT, PREFERENTIAL ACCESS, CGE MODEL, TRADE DIVERSION, BILATERAL MERCANTILISM, TRADE LIBERALIZATION, |
| Online Access: | http://documents.worldbank.org/curated/en/925591583252308139/When-Elephants-Make-Peace-The-Impact-of-the-China-U-S-Trade-Agreement-on-Developing-Countries https://hdl.handle.net/10986/33416 |
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| Summary: | Should the China-U.S. trade agreement
prompt relief because it averts a damaging trade war or
concern because selective preferential access for the United
States to China's markets breaks multilateral rules
against discrimination? The answer depends on how China
implements the agreement. Simulations from a computable
general equilibrium model suggest that the United States and
China would be better off under this "managed
trade" agreement than if the trade war had escalated.
However, compared with the policy status quo, the deal will
make everyone worse off except the United States and its
input-supplying neighbor, Mexico. Real incomes in the rest
of world would decline by 0.16 percent and in China by 0.38
percent because of trade diversion. China can reverse those
losses if, instead of granting the United States privileged
entry, it opens its market for all trading partners. Global
income would be 0.6 percent higher than under the managed
trade scenario, and China's income would be nearly 0.5
percent higher. By creating a stronger incentive for China
to open its markets to all, an exercise in bilateral
mercantilism has the potential to become an instrument for
multilateral liberalization. |
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