DP14079 Trade Wars: Nobody Expects the Spanish Inquisition

Author(s): Eddy Bekkers, Joseph Francois, Doug R Nelson, Hugo Rojas-Romagosa
Publication Date: October 2019
Keyword(s): general equilibrium trade models, International Political Economy, optimal taxation, trade wars
JEL(s): F13, F14
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14079

This paper assesses the utility of economic theory of rational trade wars to predict such events or to prescribe courses of action to control their consequences. Trade wars are fundamentally political events whose causes are almost completely political and whose consequences are to a significant degree also political. Contemporary economic theory has developed during a uniquely peaceful and liberal period in world history, affecting how economists have thought about trade conflicts, leaving the profession unprepared to provide serious analysis or advice.