Protectionism and Retaliation
28 Pages Posted: 2 Mar 2017 Last revised: 17 Aug 2017
Date Written: January 26, 2017
Abstract
The election of Donald J. Trump as President of the United States raises a litany of questions about the future of US trade policy. Canada, along with Mexico, is particularly heavily exposed to trade with the United States and there is considerable speculation about how Canada should react if the United States moves unilaterally to implement protectionist policies or demands renegotiation of existing trade deals to repatriate off-shored jobs and industry and to redress what the new President has described as “raw deals” for the United States. Amid such high uncertainty, we consider the implications of a historical example of an attempt to address so-called trade imbalances, namely the ‘Nixon measures’ of 1971. In particular, we model a Nixon-measures-type 10 percent surcharge unilaterally imposed by the United States on its trade partners in order to put some numbers around what a protectionist policy might imply for all parties. Secondly, we implement a Canadian surcharge of 10 percent against the United States to see whether Canada is better or worse off by retaliating.
Keywords: protectionism, retaliation, United States, Canada, Nixon Measures, tariff surcharge
JEL Classification: F13, F15
Suggested Citation: Suggested Citation