Quantitative Analysis of Multi-Party Tariff Negotiations

Abstract

and the University of Wisconsin for many useful comments. Ohyun Kwon provided outstanding research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w24273.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Emerging Markets and the New Geography of Trade: The Effects of Rising Trade Barriers

“…This generally depends on parameters. However both Ossa (2014) and Bagwell et al (2018) argue that the outcome of a global trade war will generally be worse than the outcome of multilateral bargaining. 36…”

“…Grant (2019) does this calculation in a simplified world of pure output and pure input goods, but there is no work, to the best of our knowledge, characterizing how these tariffs look in the most general setting. The tools for analyzing these tariffs computationally are only being developed (e.g., Bagwell et al (2018)). However, there is important future work to be done in determining the multilateral bargaining tariffs that are optimal for EMs and seeing how they differ from current tariffs and from those under a global trade war.…”

Trade Wars: What do they Mean? Why are they Happening Now? What are the Costs?

“…In the U.S. Hegemony phase, the countries would be stuck in a noncooperative Nash equilibrium under a power-based regime, with the weak country (China) refusing to participate in power-based negotiations for the reasons discussed above. This is re ‡ected in Figure 2 In the case of multilateral bargaining externalities of the kind emphasized by Bagwell, Staiger and Yurukoglu (2018), weaker countries would need to coordinate their decision not to participate in power-based trade bargaining with a hegemon: in the absence of such coordination, a single weak country acting alone and taking the participation decisions of all other countries as given would then take the ex-ante threat point as given and (in the absence of other reasons for di¤erences between ex-ante and ex-post threat points such as sunk investments) also as its ex-post threat point, and would then always choose to participate. 12 That the power-based payo¤s of the two countries converge to their rules-based payo¤s at the border between U.S. Dominance and China Dominance in Figure 2 re ‡ects an assumption that power-based and rules-based bargaining are equally e¢ cient.…”

Trade wars: What do they mean? Why are they happening now? What are the costs?

“…If a country's participation in an ongoing bargain worsens its threat point, because for example it becomes trapped by relationship-speci…c sunk costs that are incurred while the bargaining is ongoing in anticipation of a …nal agreement, then the country's ex-post threat point will be worse than its ex-ante threat point. And in this case, a weak country, expecting to receive very close to its ex-post threat point from a power-based bargain with a su¢ ciently dominant hegemon, could rationally anticipate that it will be hurt relative to its ex-ante threat point if it agrees to participate in power-based bargaining with the hegemon, and it could on this basis 10 See Bagwell and Staiger (1999), Bagwell, Staiger and Yurukoglu (2018), Goldstein and Gowa (2002) and McLaren (1997). Bagwell and Staiger and Goldstein and Gowa describe the participation bene…ts of a rulesbased system in the context of McLaren's anticipatory sunk-cost model of trade negotiations (see Winters, 1984, andFreund andMcLaren, 1999, for evidence in support of anticipatory sunk investments in the context of trade negotiations).…”

“…The power-based payo¤s of the two countries converge at the border between U.S. Dominance and China Dominance where the two countries are equally powerful, and then the payo¤s of the United States and China play mirror image roles, as we move through the China Dominance phase and …nally to the China Hegemony phase. 12 11 In the case of multilateral bargaining externalities of the kind emphasized by Bagwell, Staiger and Yurukoglu (2018), weaker countries would need to coordinate their decision not to participate in power-based trade bargaining with a hegemon: in the absence of such coordination, a single weak country acting alone and taking the participation decisions of all other countries as given would then take the ex-ante threat point as given and (in the absence of other reasons for di¤erences between ex-ante and ex-post threat points such as sunk investments) also as its ex-post threat point, and would then always choose to participate.…”