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Trade imbalances and the rise of protectionism with @Samuel_Delpeuch and Etienne Fize| VOX, CEPR Policy Portal https://voxeu.org/article/trade-imbalances-and-rise-protectionism#.YCY0RInb2QM.twitter
The US fiscal stimulus is likely to be much larger than in the EU or China. US trade deficits will increase because of this role of "consumer in last resort". We show empirically that this is likely to predict further protectionist tensions.
Bilateral and multilateral trade imbalances are indeed strong predictors of protectionist attacks. This is partly driven - but not entirely - by the US and the Trump years. Trade imbalances will continue to be a source of trade tensions post-Trump.
Global imbalances should not not only be a concern because of macroeconomic reasons, but also because of the trade tensions they can generate. As for bilateral imbalances, they are too absent of macroeconomic analyses.
We use the budget balance of a country as an IV for its multilateral trade balance. For bilateral trade imbalances, we use the difference in budget balances between the two, discounted by bilateral distance. The results are robust to this IV strategy.
In the case of the US and Germany (and more generally the EU), the difference in fiscal policy between the two may at least partly be at the origin (through its impact on bilateral trade balances) of the protectionist attacks of the US.
There is also ‘collateral damage’ in the EU. EU countries with smaller trade bilateral balances are more attacked than what would be predicted if they were not in the EU. Also, Germany – with its large bilateral trade surplus – is less attacked than if it outside the EU.
The CEPR DP co-authored with @Samuel_Delpeuch and Etienne Fize is here
https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15742
https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15742
