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The Cost of Dissolving the WTO: The Role of Global Value Chains

Author

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  • Ahmad Lashkaripour

    (Indiana University)

  • Mostafa Beshkar

    (Indiana University)

Abstract

As trade agreements face renewed pressure, we show that the rise of global value chains has multiplied the value of trade agreements to unprecedented levels. We cast our argument using a non-parametric neoclassical trade model that accommodates global input-output networks and nests a wide class of quantitative trade models as a special case. To guide our analysis, we derive analytic formulas for optimal non-cooperative trade taxes in this general framework. These formulas predict the extent of trade restriction if global trade agreements were to dissolve. Mapping these formulas to data, we quantify the value of trade agreements for various countries. We find that the disintegration of existing trade agreements will erase 30% of the overall gains from trade, which amounts to a $2.7 trillion loss in global GDP. Around 41% of this value is driven by the agreements’ facilitation of global value chains.

Suggested Citation

  • Ahmad Lashkaripour & Mostafa Beshkar, 2020. "The Cost of Dissolving the WTO: The Role of Global Value Chains," CAEPR Working Papers 2020-005 Classification-, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2020005
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    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2020-005.pdf
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    Cited by:

    1. Beshkar, Mostafa & Lee, Ryan, 2022. "How does import market power matter for trade agreements?," Journal of International Economics, Elsevier, vol. 137(C).
    2. Peter Eppinger & Gabriel J. Felbermayr & Oliver Krebs & Bohdan Kukharskyy, 2021. "Decoupling Global Value Chains," CESifo Working Paper Series 9079, CESifo.
    3. Antrà s, Pol & Chor, Davin, 2021. "Global Value Chains," CEPR Discussion Papers 15908, C.E.P.R. Discussion Papers.
    4. Pol Antràs & Teresa C. Fort & Agustín Gutiérrez & Felix Tintelnot, 2022. "Trade Policy and Global Sourcing: An Efficiency Rationale for Tariff Escalation," NBER Working Papers 30225, National Bureau of Economic Research, Inc.
    5. Tomohiro Ara & Arpita Chatterjee & Arghya Ghosh & Hongyong Zhang, 2024. "Input Tariff in Oligopoly:Entry, Heterogeneity, and Demand Curvature," TUPD Discussion Papers 47, Graduate School of Economics and Management, Tohoku University.
    6. ARA Tomohiro & Arpita CHATTERJEE & Arghya GHOSH & ZHANG Hongyong, 2019. "Input Tariff in Oligopoly: Entry, heterogeneity, and demand curvature," Discussion papers 19066, Research Institute of Economy, Trade and Industry (RIETI).
    7. Lorenzo Caliendo & Robert C. Feenstra & John Romalis & Alan M. Taylor, 2023. "Tariff Reductions, Heterogeneous Firms, and Welfare: Theory and Evidence for 1990–2010," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(4), pages 817-851, December.
    8. Lashkaripour, Ahmad, 2021. "The cost of a global tariff war: A sufficient statistics approach," Journal of International Economics, Elsevier, vol. 131(C).

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