US–China rivalry: The macro policy choices |
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Authors: | Rod Tyers Yixiao Zhou |
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Institution: | 1. Business School, University of Western Australia, Crawley, WA, Australia;2. Research School of Economics, Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Canberra, ACT, Australia |
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Abstract: | Stylised 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’ policies. As large economies, both enjoy ‘optimal tariffs’, even bilaterally, though net outcomes are shown to depend on the allocation of revenues. Bilateral tariffs are most advantageous for the US if the additional revenue finances indirect tax relief. Once US bilateral tariffs are imposed, China is a net loser 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 have the US imposing tariffs while China liberalises. |
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Keywords: | China general equilibrium analysis macroeconomic policy numerical theory trade policy |
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