Abstract
Does trade recover after the end of a trade war? We study the 1888-1898 trade war between Italy and France using annual trade data through 1913. Structural gravity estimates imply that bilateral trade was about 58% below its no-conflict counterfactual during the trade war and 57% below it during 1899-1913. Synthetic controls corroborate the persistent decline in bilateral trade. A multi-country general equilibrium model disciplined by the bilateral estimates implies that third-market reallocation was limited, leaving Italy’s total trade about 16% below its no-conflict counterfactual during the conflict and 12% below it after the settlement. The episode shows that the economic consequences of trade wars may persist long after their acute phase in a setting where the restoration of trade relations remains incomplete.
Rodolfo G. Campos
Economist
My research interests include macroeconomics, social insurance, and international economics.