Managed Trade: What Could Be Possible Spillover Effects of a Potential Trade Agreement between the U.S. And China?

22 Pages Posted: 22 Jan 2020

See all articles by Eugenio Cerutti

Eugenio Cerutti

International Monetary Fund (IMF); Johns Hopkins University

Pragyan Deb

International Monetary Fund (IMF); London School of Economics & Political Science (LSE) - Financial Markets Group

Albe Gjonbalaj

International Monetary Fund (IMF)

Swarnali Ahmed Hannan

International Monetary Fund (IMF)

Adil Mohommad

International Monetary Fund (IMF)

Date Written: November 2019

Abstract

The trade discussions between the U.S. and China are on-going. Not much is known about the shape and nature of a potential agreement, but it seems possible that it would include elements of managed trade. This paper attempts to examine the direct, first-round spillover effects for the rest of the world from managed trade using three approaches. The results suggest that, in the absence of a meaningful boost in China's domestic demand and imports, bilateral purchase commitments are likely to generate substantial trade diversion effects for other countries. For example, the European Union, Japan, and Korea are likely to have significant export diversion in a potential deal that includes substantial purchases of U.S. vehicles, machinery, and electronics by China. At the same time, a deal that puts greater emphasis on commodities would put small commodity exporters at a risk. This points to the advantages of a comprehensive agreement that supports the international system and avoids managed bilateral trade arrangements.

Keywords: Bilateral trade, Balance of trade, Patterns of trade, Trading systems, Trade policy, Managed trade deal, spillover effects., WP, extra purchase, size-based, trade gap, spillover effect, U.S. export

JEL Classification: F1, F6, E01, Q, F13, Q35

Suggested Citation

Cerutti, Eugenio and Deb, Pragyan and Gjonbalaj, Albe and Ahmed Hannan, Swarnali and Mohommad, Adil, Managed Trade: What Could Be Possible Spillover Effects of a Potential Trade Agreement between the U.S. And China? (November 2019). IMF Working Paper No. 19/251, Available at SSRN: https://ssrn.com/abstract=3523124

Eugenio Cerutti (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Johns Hopkins University ( email )

Baltimore, MD 21218
United States

Pragyan Deb

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Albe Gjonbalaj

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Swarnali Ahmed Hannan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Adil Mohommad

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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