Calibrating Bilateral Tariffs for Trade Rebalancing: A Dynamic Adjustment Model for the U.S.–China Deficit

Persistent bilateral trade imbalances pose enduring challenges to global trade stability, yet most existing approaches either assume fixed tariff scenarios or rely on static simulations that lack mechanisms for deriving empirically grounded policy paths. This paper develops a forward-calibrated tariff framework aimed at compressing the U.S.–China trade deficit within a four-year policy window. The model integrates three key adjustment parameters—price elasticity of demand, substitution rigidity, and exchange rate misalignment—while incorporating institutional dampening and political feasibility constraints. Tariff rates are not assumed ex ante but endogenously derived to follow a front-loaded, exponentially declining path governed by an empirically calibrated decay function. Applied to current U.S.–China trade data, the model yields a tariff trajectory consistent with recent policy benchmarks. Results demonstrate that a phased, dynamically structured tariff strategy can meaningfully reduce the bilateral deficit—even under partial effectiveness. By linking empirical trade responsiveness with implementation constraints, the framework provides a policy-relevant alternative to static incidence studies and general equilibrium simulations, offering concrete guidance for trade rebalancing under real-world conditions. JEL Codes : F10 General; F12 Models of Trade with Imperfect Competition and Scale Economies; F14 Empirical Studies of Trade