Economic models used to forecast the impact of international trade agreements have an in-built bias to favor free trade. This has led these models to underestimate repeatedly the damage done to U.S. manufacturing industry by trade agreements, dating back to NAFTA.
The bias or rigidity in these models can be corrected by modifying some of their assumptions and/or equations. In this working paper, we make two important modifications to GTAP (Global Trade and Analysis Project), the most widely used trade model, to allow trade restrictions in the form of tariffs to increase domestic output. This working paper shows that across-the-board tariffs of 35% on all manufactured imports would grow the U.S. economy, increase manufacturing output, and create jobs.
Read our full working paper here.
View a slide presentation on the working paper here.