Global Economy Journal
The Official Publication of the International Trade and Finance Association
Ed. by Sawyer, W. Charles
4 Issues per year
SCImago Journal Rank (SJR) 2015: 0.265
Source Normalized Impact per Paper (SNIP) 2015: 0.437
Impact per Publication (IPP) 2015: 0.333
The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism
This paper argues that the growing US trade deficit has caused the decline of the WTO and the rise of regional trade agreements. Growing imbalances make countries more selective about who to cooperate with. This is formally shown in a three-country negotiation game that is based on a goods-market model. Subsequently, the model is parameterized and applied quantitatively. Using historical data, the model correctly predicts the date that US-Canada FTA talks began. Based on current data, moreover, the model paints a bleak picture for multilateralism: US exports to China would have to triple for a new WTO round to stand a chance. But even this may be insufficient: a dynamic extension of the game shows that regionalism can have a lock-in effect. Nonetheless, this does not plead for tougher WTO rules on regionalism. As is argued both qualitatively and quantitatively, these may push countries to less, not more, cooperation.
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