The Economic Impact of Tariff Eliminations in a U.S.-U.K. Free Trade Agreement: A CGE Model with Worker Displacement

Abstract

On May 5, 2020, the U.S. Trade Representative announced plans to negotiate a free trade agreement with the United Kingdom. We use GTAP to model the economic impacts of this free trade agreement, exclusively focusing on the bilateral tariff elimination. We find that a standard GTAP model leads to a general improvement in economic conditions for both countries, but more for the U.K. than the U.S. However, in a second model we build on previous studies that incorporate worker displacement effects and our results show a small negative impact to employment for both countries and a negative effect on GDP for the U.S. Our results suggest the importance of incorporating worker displacement when modelling international trade.

Keywords: Simulation Modeling, General Equilibrium, Welfare Economics, Globalization, International Relations, Trade, Free Trade, International Trade, Trade Forecast, Trade Projection, Trade Simulation, Labor Market, Unemployment, Unskilled Wage, La- bor Mobility, Dismissal, Displaced, Firing, Layoff

JEL Classification: C00, C68, D22, D24, D58, D60, D62, E17, F11, F14, F16, F17, F60, F61, F62, F63 F66, F68, I31, J01, J