The Economic Impacts of a U.S. withdrawal from NAFTA: A CGE Analysis

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Undergraduate Economic Review, Vol: 14, Issue: 1, Page: 14

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Liu, Jonathan
International Economics; Macroeconomics; Free Trade; NAFTA; Econometrics; Economic Theory
article description
The aim of this study is to examine the economic impacts of a U.S. withdrawal from the North American Free Trade Agreement (NAFTA) on Canada, Mexico and the United States. The shocks simulate scenarios in which the U.S instates penalizing tariff rates on NAFTA countries, a trade war between NAFTA members and a tariff reset to the WTO MFN rates. The effects of these tariff structures are analyzed under the framework of a computable general equilibrium (CGE) model with a focus on macroeconomic variables and welfare. The findings show that, in all iterations, Mexico’s economy takes a substantial hit, America’s economy is marginally affected and Canada’s economy slightly benefits.