When Elephants Make Peace : The Impact of the China-U.S. Trade Agreement on Developing Countries
Should the China-U.S. trade agreement prompt relief because it averts a damaging trade war or concern because selective preferential access for the United States to China's markets breaks multilateral rules against discrimination? The answer d...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/925591583252308139/When-Elephants-Make-Peace-The-Impact-of-the-China-U-S-Trade-Agreement-on-Developing-Countries http://hdl.handle.net/10986/33416 |
| Summary: | Should the China-U.S. trade agreement
prompt relief because it averts a damaging trade war or
concern because selective preferential access for the United
States to China's markets breaks multilateral rules
against discrimination? The answer depends on how China
implements the agreement. Simulations from a computable
general equilibrium model suggest that the United States and
China would be better off under this "managed
trade" agreement than if the trade war had escalated.
However, compared with the policy status quo, the deal will
make everyone worse off except the United States and its
input-supplying neighbor, Mexico. Real incomes in the rest
of world would decline by 0.16 percent and in China by 0.38
percent because of trade diversion. China can reverse those
losses if, instead of granting the United States privileged
entry, it opens its market for all trading partners. Global
income would be 0.6 percent higher than under the managed
trade scenario, and China's income would be nearly 0.5
percent higher. By creating a stronger incentive for China
to open its markets to all, an exercise in bilateral
mercantilism has the potential to become an instrument for
multilateral liberalization. |
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