a column by Johannes Eugster, Florence Jaumotte, Margaux MacDonald and Roberto Piazza for VOX: CEPR’s Policy Portal
Bilateral trade balances have come under scrutiny recently, with some policymakers concerned that their large and rising size may reflect asymmetric obstacles to trade.
This column argues that macroeconomic factors – rather than bilateral tariffs – have been the key drivers of the evolution of bilateral trade balances. While tariffs have played a modest role in the evolution of bilateral balances, declines in tariffs have lifted productivity by allowing a greater international division of labour, including through participation in global value chains.
A sharp increase in tariffs would therefore create significant spillovers, leaving the global economy worse off.
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