US-China Rivalry: The Macro Policy Choices

45 Pages Posted: 22 May 2019 Last revised: 2 Jun 2019

See all articles by Rod Tyers

Rod Tyers

Australian National University (ANU) - School of Economics; The University of Western Australia - Department of Economics

Yixiao Zhou

Australian National University (ANU) - Crawford School of Public Policy

Date Written: May 22, 2019

Abstract

Stylized representations of recent US and Chinese tax reforms, tariffs against imports and alternative Chinese monetary targeting are examined using a calibrated global macro model that embodies both trade and financial interdependencies. For both countries, unilateral capital tax relief and bilateral tariffs are shown to be “beggar thy neighbor” in consequence with tariffs most advantageous for the US if revenue finances consumption tax relief. China is nonetheless a net loser when these policies are implemented unilaterally by the US, irrespective of its policy response, though a currency float is shown to cushion the effects on its GDP in the short run. Equilibria in normal form non-cooperative tariff games exhibit spill-overs that are substantial but insufficient to deter dominant strategies. The US imposes tariffs while China liberalizes, sustaining fiscal balance via consumption tax relief in the US and expenditure restraint in China.

Keywords: trade policy, macroeconomic policy, general equilibrium analysis, numerical theory, China

JEL Classification: F13, F41, F47

Suggested Citation

Tyers, Rod and Zhou, Yixiao, US-China Rivalry: The Macro Policy Choices (May 22, 2019). CAMA Working Paper No. 35/2019, Available at SSRN: https://ssrn.com/abstract=3392102 or http://dx.doi.org/10.2139/ssrn.3392102

Rod Tyers (Contact Author)

Australian National University (ANU) - School of Economics ( email )

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The University of Western Australia - Department of Economics ( email )

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Australia
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HOME PAGE: http://www.business.uwa.edu.au/school/staff-profiles?type=profile&dn=cn%3DRodney%20Tyers%2Cou%3DEcon

Yixiao Zhou

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

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