||Economic Impact of Tariff Hikes -A CGE model analysis-
18-052018-06 , GRIPS Policy Research Center
The US imposed US tariffs on steel and aluminum imports in March 2018. An estimate of the economic impact of tariff hikes made using a Computable General Equilibrium (CGE) model of global trade, incorporating a dynamic capital formation mechanism, indicates that US import tariffs could protect the relevant US sectors but would have a negative impact on the US economy at the macro level. This key policy finding could not be attributed to the conventional framework of fixed labor in a CGE model. Also, a sensitivity analysis using a CGE model indicates that international capital movements would differentiate the impact of tariff hikes among countries. Trade deficits themselves would not necessarily be of much concern given the somewhat compensatory benefits of international capital inflows. On the other hand, possible capital outflows could exaggerate the adverse effects of tariff hikes. It is estimated here that for an import tariff hike of one percentage point worldwide, global trade would decrease by around 1.7 per cent and global GDP would decrease by around 0.2 per cent. It is of concern that emergent protectionism would reduce the growth of both global trade and the global economy.
JEL Classification Codes: D58, F13, F14, F16, F17