The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism
Title: The US Trade Deficit, the Decline of the WTO and the Rise of Regionalism
Author: AGUR, Itai
Publisher: European University Institute
Series/Report no.: EUI ECO; 2007/17
This paper argues that the growing US trade deficit has caused the decline of the WTO and the rise of regional trade agreements. A country in de.cit prefers to retain market power against countries with a large surplus. Multilateral cooperation restricts its choice. This notion is formalized in a three-country game in which countries negotiate multilaterally and, if that fails, bilaterally. The multilateral agreement only holds for su¢ ciently even trade balances. When one country's deficit grows too large, a regionalist equilibrium emerges. A VAR analysis shows that the US trade balance explains over 50% of the variation in regional trade agreements.
Subject: Regionalism; RTA; Multilateralism; WTO; Trade balance; US trade deficit; C72, C73, F13, F32
Type of Access: openAccess