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Trade Frictions in Multinational Inputoutput Networks——The Effects of the Trade Frictions between China and US on Employment and Welfare

【Authors】
QI Yingfei,LI Yuanfei
【WorkUnit】
Dongbei University of Finance and Economics, 116025.
【Abstract】

Based on the trade friction between China and US in 2018, we establish a multinational general equilibrium model with input-output structure, using which the effects of tariff rate shock on output as well as employment and the transmission mechanism are well described. We exposit that change of tariff rates affects real output from both demand and supply sides. When network effect exists the demand effect propagates upstream which includes negative change of export volume and positive change of transfer payment while the supply effect refers to cost shock caused by change of price and it propagates downstream. We then run simulation to find out how employment and welfare of both countries react to the four runs of tariff increases. The result shows that the inconsistence between change of employment and tariff rate due to network effect is responsible for the imbalance change of employment in different industries. Finally as a result of this trade friction the total employment and welfare level decline in both China and US.

JEL:C67, E24, F17

【KeyWords】
Input-output Networks, Trade Frictions, Tariff Shocks, Welfare Analysis