Navigating the Trade Storm: Multilateral Flanking of US Transactionalism

With near constant change in Donald Trump’s bilateral tariff policies, the global economy finds itself in uncharted territory. On top of Trump’s various tariff increases, we have witnessed tariff-based retaliation, U.S. retaliation against the retaliation, and non-tariff retaliation targeting U.S.-based MNEs in the service sector. We have also seen on-again off-again changes to US bilateral trade policy, with tariffs announced, delayed, walked back, and reintroduced. Official statements on tariffs contradict previous statements.

This has all taken place in the broader context of confusion and uncertainty about key elements of US macroeconomic policy – taxes, monetary policy, scientific funding, and the stability of US regulatory frameworks to name just a few. All of this carries the scope for very real economic costs for third countries. In this policy brief we examine recent changes in US trade policy, along-side possible flanking measures (policy responses) and the impact of increased risk costs for US investors. To do this we work with a large scale Computable General Equilibrium Model (CGE). We first assess the long-run impact of the current tariffs on economies around the world, and then we show the potential impact of a pro-active pro-trade multilateral response by the rest of the world. This includes increased risk premia tied to continued investment in the U.S. economy.