Modeling tariff-induced network failure and hysteresis

Area of Science:

• Economics
• Network Science
• Complexity Science

Background:

• Modern global production is characterized by deep interconnections and interdependencies.
• Tariffs on these industries pose a significant risk of cascading economic failures.
• Understanding the systemic impact of trade policies is crucial for economic stability.

Purpose of the Study:

• To model the impact of adding and removing tariffs on interdependent industries.
• To identify critical thresholds for tariff imposition that could lead to economic collapse.
• To analyze the reversibility and recovery dynamics of global trade after tariff removal.

Main Methods:

• Utilized a network with a hypernode framework to model interdependent industries.
• Applied heterogeneous k-core percolation dynamics to simulate tariff effects.
• Employed a modified generating function formalism for quantitative analysis.

Main Results:

• Identified a critical transition threshold for tariffs.
• Tariffs below the threshold cause modest, reversible trade reduction.
• Tariffs exceeding the threshold trigger catastrophic collapse, spreading to unrelated sectors, with hysteresis hindering full recovery.

Conclusions:

• Tariffs exceeding a critical threshold can lead to irreversible economic collapse.
• Hysteresis effects can prevent full recovery even after tariff removal.
• The apparent reversibility of trade under weak tariffs masks proximity to dangerous tipping points.