Impact of Global Trade Liberalization on Regional Trade Balances

Abstract

General equilibrium effects of trade liberalization on trade balances remain an important consideration for trade policy makers as welfare- improving trade liberalization initiatives may fail if it is perceived to have negative consequences on trade balance. Further, composition of trade balance matters in that a food imbalance is viewed as less tolerable than imbalances in other sectors. Potential trade imbalances from a multilateral trade accord are one of the most contentious issues stalling WTO's Doha Round. Using the GTAP applied general equilibrium model this paper evaluates alternative approaches to further liberalizing global food and non-food trade. By creating a separate textile and clothing sector from within manufacturing sector, the paper highlights the conflicts among developing and developed country interests. Finally, by extending tariff cuts to all sectors and regions, the paper demonstrates the interactions between reformed sectors, and the advantages offered by a comprehensive round of trade negotiations. Keywords: CGE model, Trade balance, Doha Round, Tariffs