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Phase out tariffs, phase in trade?

Author

Listed:
  • Tibor Besedes
  • Tristan Kohl
  • James Lake

Abstract

What causes U.S. trade with Mexico and Canada to continue growing faster, for up to a decade, relative to countries with which the U.S. does not have a free trade agreement? Baier and Bergstrand (2007) suggest that tariff phase-out and delayed pass-through of tariffs into import prices could cause such prolonged differential import growth. We examine how tariff cuts negotiated under the Canada-US Free Trade Agreement and the North American Free Trade Agreement (NAFTA) affected U.S. import growth in 1989{2016 using detailed product-level data on tariff phase-out in the original treaties. We find essentially no evidence for the tariff phase-out or delayed pass through explanations. Rather, we find evidence for an important role played by NAFTA tariff cuts reducing the impacts of frictions at various extensive margins.

Suggested Citation

  • Tibor Besedes & Tristan Kohl & James Lake, 2019. "Phase out tariffs, phase in trade?," CESifo Working Paper Series 7614, CESifo.
    • Handle: RePEc:ces:ceswps:_7614
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    Cited by:

    1. James Lake & Ding Liu, 2022. "Local Labor Market Effects of the 2002 Bush Steel Tariffs," CESifo Working Paper Series 9909, CESifo.
    2. Feodora Teti, 2020. "30 Years of Trade Policy: Evidence from 5.7 Billion Tariffs," ifo Working Paper Series 334, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Flach, Lisandra & Gräf, Fabian, 2020. "The impact of trade agreements on world export prices," Munich Reprints in Economics 70372, University of Munich, Department of Economics.
    4. Alan V. Deardorff & Rishi R. Sharma, 2021. "Exempted sectors in free trade agreements," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 284-310, February.
    5. Richard Chisik & Sara Rohany Tabatabai, 2022. "International sourcing, complementary inputs, and the structure of trade agreements: Deep, shallow, narrow, and wide," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1782-1805, October.
    6. Fabien Forge & Jason Garred & Kyae Lim Kwon, 2021. "When are Tariff Cuts Not Enough? Heterogeneous Effects of Trade Preferences for the Least Developed Countries," Working Papers 2106E, University of Ottawa, Department of Economics.
    7. Lee, Maxine J., 2021. "The effect of import competition on educational attainment at the postsecondary level: Evidence from NAFTA," Economics of Education Review, Elsevier, vol. 82(C).
    8. Anca D. Cristea & Anna Miromanova, 2022. "Firm‐level trade effects of WTO accession: Evidence from Russia," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 237-281, February.
    9. Sang‐Wook (Stanley) Cho & Hansoo Choi & Julián P. Díaz, 2022. "The causal effect of free trade agreements on the trade margins: Product‐level evidence from geographically distant partners," Southern Economic Journal, John Wiley & Sons, vol. 88(4), pages 1453-1489, April.
    10. Andrew N. Greenland & Mihai Ion & John W. Lopresti & Peter K. Schott, 2020. "Using Equity Market Reactions to Infer Exposure to Trade Liberalization," NBER Working Papers 27510, National Bureau of Economic Research, Inc.
    11. Carter Mix & George Alessandria, 2017. "The Global Trade Slowdown: A Dynamic Approach," 2017 Meeting Papers 907, Society for Economic Dynamics.
    12. George A. Alessandria & Carter B. Mix, 2021. "Trade Policy is Real News: Theory and Evidence," NBER Working Papers 28904, National Bureau of Economic Research, Inc.
    13. George Alessandria & Carter Mix, 2019. "Trade Policy is Real News: A quantitative analysis of past, current, and future changes in U.S. trade barriers," 2019 Meeting Papers 545, Society for Economic Dynamics.
    14. Jue Wang & Shi Wang & Hua Wang & Yan Song, 2022. "A Numerical Simulation Analysis Framework of Sustainable Regional Economic Cooperation: A Case Study of the New Silk Road Economic Belt," Sustainability, MDPI, vol. 14(10), pages 1-18, May.
    15. Khan, Shafaat Yar & Khederlarian, Armen, 2021. "How does trade respond to anticipated tariff changes? Evidence from NAFTA," Journal of International Economics, Elsevier, vol. 133(C).
    16. Tobias Sytsma, 2021. "Rules of origin and trade preference utilization among least developed countries," Contemporary Economic Policy, Western Economic Association International, vol. 39(4), pages 701-718, October.
    17. Cheng, Sirui & Hua, Xiuping & Wang, Qingfeng, 2023. "Corporate culture and firm resilience in China: Evidence from the Sino-US trade war," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    18. Andrea Bernini & Olaf J. de Groot, 2024. "The impact of trade on income inequality in Mexico," Economics Series Working Papers 1036, University of Oxford, Department of Economics.
    19. Fernandes, Ana M. & Forero, Alejandro & Maemir, Hibret & Mattoo, Aaditya, 2023. "Are trade preferences a Panacea? The export impact of the African growth and Opportunity Act," World Development, Elsevier, vol. 162(C).

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    More about this item

    Keywords

    free trade agreements; CUSFTA; NAFTA; trade; phase-out; tariffs; extensive margin;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General

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