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Phase Out Tariffs, Phase In Trade?

Author

Listed:
  • James Lake

    (Southern Methodist University)

  • Tibor Besedes

    (Georgia Institute of Technology)

  • Tristan Kohl

    (University of Groningen)

Abstract

An important stylized fact in the empirical Free Trade Agreement (FTA) literature is that member trade flows gradually increase over time following an FTA. Baier & Bergstrand (2007) suggest two explanations: tariff phase-out and delayed pass-through of tariffs into import prices. We examine these hypotheses using 1989-2016 U.S. import growth and product-level data on the tariff phase-out negotiated under NAFTA and the earlier Canada-U.S. FTA. We find evidence supporting a weak form of the tariff phase-out hypothesis. But, we find little evidence supporting a strong form of this hypothesis because the bulk of delayed import growth stems from products granted tariff free access upon NAFTA rather than products with phased-out tariffs. Additionally, we do not find evidence supporting the delayed tariff pass-through hypothesis. Instead, we find evidence for an important role played by NAFTA tariff cuts reducing the impact of frictions that, in turn, allow a spatial expansion of imports across the U.S.

Suggested Citation

  • James Lake & Tibor Besedes & Tristan Kohl, 2019. "Phase Out Tariffs, Phase In Trade?," Departmental Working Papers 1903, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:1903
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    References listed on IDEAS

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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. 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.
    3. 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.
    4. 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.
    5. George Alessandria & Carter Mix, 2021. "Trade Policy is Real News: Theory and Evidence," International Finance Discussion Papers 1330, Board of Governors of the Federal Reserve System (U.S.).
    6. 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.
    7. 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.
    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. 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.
    10. 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).
    11. 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.
    12. Carter Mix & George Alessandria, 2017. "The Global Trade Slowdown: A Dynamic Approach," 2017 Meeting Papers 907, Society for Economic Dynamics.
    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. 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).
    15. 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.
    16. 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.
    17. 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.
    18. 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).
    19. 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).

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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:

    • F1 - International Economics - - Trade

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