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GTAP Resource #5783

"Traders’ Dilemma: Developing Countries’ Response to Trade Disputes"
by Devarajan, Shanta, Delfin S Go, Csilla Lakatos, Sherman Robinson and Karen Thierfelder

If trade tensions between the United States and certain trading partners escalate into a full-blown trade war, what should developing countries do? Using a global, general- equilibrium model, this paper first simulates the effect of an increase in U.S. tariffs on imports from all regions to about 30 percent (the average non-MFN tariff currently applied to imports from Cuba and North Korea), and retaliation in kind by the major trading partners—the European Union, China, Mexico, Canada, and Japan. This paper then consider four possible responses by developing countries to this trade war: (i) join the trade war; (ii) do nothing; (iii) form regional trading arrangements with all regions outside the United States; (iv) option (iii) and unilaterally liberalize tariffs on imports from the United States. The results show that joining the trade war is the worst option for developing countries (twice as bad as doing nothing); and forming RTAs with non-U.S. regions and liberalizing tariffs on U.S. imports (“turning the other cheek”) is the best. The reason is that a trade war between the United States and its major partners creates opportunities for developing countries to increase their exports to these markets. Liberalizing tariffs increases developing countries’ competitiveness, enabling them to further capitalize on these opportunities.

Resource Details (Export Citation) GTAP Keywords
Category: 2019 Conference Paper
Status: Published
By/In: Presented at the 22nd Annual Conference on Global Economic Analysis, Warsaw, Poland
Date: 2019
Created: Thierfelder, K. (4/14/2019)
Updated: Thierfelder, K. (4/14/2019)
Visits: 1,620
- Multilateral trade negotiations
- Preferential trading arrangements
- North America

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