Divided We Fall: International Health and Trade Coordination During a Pandemic

56 Pages Posted: 7 Dec 2020 Last revised: 28 Jun 2023

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Zhengyang Jiang

Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER)

Robert Richmond

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Ernst-Ludwig von Thadden

Universitaet Mannheim; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2020

Abstract

We analyze the role of international trade and health coordination in times of a pandemic by building a two-economy, two-good trade model integrated into a micro-founded SIR model of infection dynamics. Uncoordinated governments with national mandates can adopt (i) containment policies to suppress infection spread domestically, and (ii) (import) tariffs to prevent infection coming from abroad. The efficient, i.e., coordinated, risk-sharing arrangement dynamically adjusts both policy instruments to share infection and economic risks internationally. However, in Nash equilibrium, uncoordinated trade policies robustly feature inefficiently high tariffs that peak with the pandemic in the foreign economy. This distorts terms of trade dynamics and magnifies the welfare costs of tariff wars during a pandemic due to lower levels of consumption and production as well as smaller gains via diversification of infection curves across economies.

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Jiang, Zhengyang and Richmond, Robert and von Thadden, Ernst-Ludwig, Divided We Fall: International Health and Trade Coordination During a Pandemic (December 2020). NBER Working Paper No. w28176, Available at SSRN: https://ssrn.com/abstract=3743909

Viral V. Acharya (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
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United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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National Bureau of Economic Research (NBER) ( email )

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Zhengyang Jiang

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://sites.google.com/site/jayzedwye/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert Richmond

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ernst-Ludwig Von Thadden

Universitaet Mannheim ( email )

Department of Economics
Mannheim, 68131
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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