How Should Canada React to the Looming U.S. Trade War?

Pau Pujolas and Jack Rossbach

Department of Economics Working Papers from McMaster University

Abstract: We apply the quantitative theory in Pujolas and Rossbach (2024), which determines optimal tariff rates in a multi-country, multi-sector general equilibrium model with input-output linkages and services trade, to a hypothetical trade war between the United States and Canada. While the United States can “win" a trade war if its tariffs against Canadian products are optimally chosen, a 25% across-the-board tariff met with optimal retaliatory tariffs by Canada causes the United States to also lose the trade war. Canada loses the trade war in all the scenarios we consider. However, the United States gains substantially more from engaging in a trade war with China than with Canada.

Keywords: Trade War; Tariffs; Applied General Equilibrium; International Trade (search for similar items in EconPapers)
JEL-codes: F11 F13 F14 F17 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2025-01
New Economics Papers: this item is included in nep-int and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2025-01

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