US-China Rivalry: The Macro Policy Choices

Rodney Tyers and Yixiao Zhou

No 19-08, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Stylized representations of recent US and Chinese tax reforms, tariffs against imports and alternative Chinese monetary targeting are examined using a calibrated global macro model that embodies both trade and financial interdependencies. For both countries, unilateral capital tax relief and bilateral tariffs are shown to be “beggar thy neighbor” in consequence with tariffs most advantageous for the US if revenue finances consumption tax relief. China is nonetheless a net loser when these policies are implemented unilaterally by the US, irrespective of its policy response, though a currency float is shown to cushion the effects on its GDP in the short run. Equilibria in normal form non-cooperative tariff games exhibit spill-overs that are substantial but insufficient to deter dominant strategies. The US imposes tariffs while China liberalizes, sustaining fiscal balance via consumption tax relief in the US and expenditure restraint in China.

Keywords: Trade policy; macroeconomic policy; general equilibrium analysis; numerical theory; China (search for similar items in EconPapers)
JEL-codes: F13 F41 F47 (search for similar items in EconPapers)
Pages: 41
Date: 2019
New Economics Papers: this item is included in nep-int and nep-tra
Note: MD5 = eae073bb5d31e5f9a40866905e5b2737
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Related works:
Journal Article: US–China rivalry: The macro policy choices (2020)
Working Paper: US-China rivalry: The macro policy choices (2019)
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