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Potential economic effects of a global trade conflict: Projecting the medium-run effects with the WTO global trade model

Eddy Bekkers () and Robert Teh

No ERSD-2019-04, WTO Staff Working Papers from World Trade Organization (WTO), Economic Research and Statistics Division

Abstract: The WTO Global Trade Model is employed to project the medium-run economic effects of a global trade conflict. The trade conflict scenario is based on recent estimates in the literature of the difference between cooperative and non-cooperative tariffs. The study provides three main insights. First, the projected macroeconomic effects in the medium run are considerable. A global trade conflict started in 2019 would lead to a reduction in global GDP in 2022 of about 1.96% and a reduction in global trade of about 17% compared to the baseline. For context global GDP fell about 2.1% and global trade 12.4% in the global financial crisis of 2009. Second, behind the single-digit aggregate production effects there are much larger, double-digit sectoral production effects in many countries, leading to a painful adjustment process. In general, a global trade conflict leads to a reallocation of resources away from the most efficient allocation based on comparative advantage. Third, the large swings in sectoral production lead to substantial labour displacement. On average 1.15% and 1.74% of high-skilled and low-skilled workers respectively would leave their initial sector of employment.

Keywords: computable general equilibrium (CGE) model; Nash tariffs; revealed comparative advantage (RCA); labour displacement (search for similar items in EconPapers)
JEL-codes: B41 C63 F13 F16 F51 F53 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cmp and nep-int
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