Optimal Tariff and Endogenous Drivers for Trade Liberalization*

Li Chunding (李春顶), Lu Jing (陆菁) and He Chuantian (何传添)
College of Economics and Management, China Agricultural University, Beijing, China
School of Economics, Zhejiang University, Hangzhou, China
Research Center for International Trade and Economics, Guangdong University of Foreign Studies, Guangzhou, China

Abstract: Trade liberalization requires institutional coordination and openness, and is driven by a multitude of factors. This paper simulates endogenous optimal tariffs under different model structures to uncover the underlying drivers of trade liberalization. Parametric calibration and simulation methods based on the numeric general equilibrium model are employed to estimate the optimal tariff rates of countries with and without trade retaliation. Then, near-reality assumptions are added into the standard general equilibrium model structure, including the cross-border capital flow, multi-country assumption and trade cost, to simulate decreasing optimal tariff rates. The simulation results suggest that world economic development has increased the economic ties and interdependence among nations, making trade liberalization an endogenous optimal choice. The backlash against globalization in recent years is motivated by short-term factors, but will not persist in the long run since it goes against the law of economic growth and socio-economic development.

Keywords: optimal tariff rate, general equilibrium, model structure, trade liberalization
JEL Classification Codes: F11, C63, F13
DOI: 1 0.19602/j .chinaeconomist.2020.03.03

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