Trade Liberalization in General Equilibrium: Intertemporal and Inter-industry Effects.

Abstract

A computable general equilibrium model is used to examine effects of removing U.S. tariff and non-tariff barriers to trade. The model differs from traditional disaggregated trade models in its attention to intertemporal decision-making, adjustment dynamics, and international capital mobility. Unilateral elimination of tariffs would reduce the welfare of U.S. households by 0.4 percent. Elimination of quantitative restrictions, in contrast, would increase U.S. welfare by 1.1 percent. The international cross-ownership of capital associated with internationally mobile capital significantly influences the distribution of capital gains and losses from trade liberalization. Disregarding cross-ownership leads to understatement of the domestic welfare losses from tariff removal and overstatement of the domestic welfare gains from eliminating quantitative restrictions.