Bohdan Kukharskyy is an Assistant Professor of Economics at Baruch College. His research field is International Trade, with a particular focus on the analysis of global value chains and the organization of multinational firms across borders.

Title: Opening the Black Box of Quantitative Trade Models

Abstract: In the course of the U.S.–China trade war, the U.S. increased trade barriers on both intermediate and final goods, but disproportionately so for intermediates. This raises a policy-relevant question: Is a given increase in trade barriers on intermediate goods less detrimental for a country’s welfare compared to the equivalent impediment of final goods trade? To address this question, we use a uniquely suited quantitative trade model, which allows us to assess the differential welfare implications of increased barriers to trade in intermediates vs. final goods. Using the World Input-Output Database, we simulate various scenarios of protectionism and different magnitudes of trade barriers. We find that in the vast majority of scenarios, the general equilibrium (GE) welfare effects of raising trade barriers on intermediate goods are worse compared to the same increase for final goods. To better understand this finding, we (i) log-linearize the model, and (ii) decompose the welfare effects into partial equilibrium (PE) vs. general equilibrium (GE) effects. An important finding is that the PE effects are almost perfectly correlated with GE welfare effects. Our analytical expression of the linear PE effects allows us to characterize the channels underlying these welfare effects and provide an economic intuition behind the quantitative results.