The impact of a U.S.–U.K. free trade agreement on workers: a CGE model with worker displacement

Jeff Ferry (), Badri Narayanan Gopalakrishnan () and Amanda Mayoral ()
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Jeff Ferry: Coalition for a Prosperous America
Badri Narayanan Gopalakrishnan: Infinite Sum Modelling LLC
Amanda Mayoral: Coalition for a Prosperous America

Business Economics, 2022, vol. 57, issue 3, No 5, 138 pages

Abstract: Abstract On May 5, 2020, the U.S. Trade Representative announced plans to negotiate a free trade agreement with the United Kingdom (USUKFTA). We use GTAP to model the economic impacts of such a free trade agreement. We also develop a modified GTAP model that includes worker displacement to incorporate unemployment generated by the free trade agreement into the model. We find that a standard GTAP model leads to a very small improvement in economic conditions for both countries, but more for the U.K. than the U.S.A. Our worker displacement model shows a small negative impact to employment for both countries and a negative effect on GDP for the U.S.A. It is unusual for a trade model to show a negative impact on GDP or employment from adoption of a free trade agreement. Our results suggest that worker displacement is an important impact of trade agreements. Our results also explain the industry-specific effects of a USUKFTA. We find that the manufacturing sector is behind most changes in output and the trade balance for both models. In particular, the U.S. transportation equipment and Computer/electrical sectors suffer the most, while the U.K. suffers more from a decline in service sectors.

Keywords: Industrial organization; Computable general equilibrium models; Trade policy; Trade simulation; Labor mobility (search for similar items in EconPapers)
JEL-codes: C68 F13 F17 J6 L0 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s11369-022-00268-1

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