The Cumulative Impact of Trade Barriers along the Value Chain: An Empirical Assessment using the OECD Inter-Country Input-Output Model

Since the post-war period, tariffs on manufactures have been deeply reduced through successive rounds of multilateral negotiations, regional agreements and autonomous liberalisation. In addition, more recent trade agreements have addressed an increasing number of regulatory barriers to trade, including on services. While overall trade has been liberalised for many products, this does not mean that barriers such as tariffs have ceased to matter. In a world characterised by global value chains, even small tariffs can have a significant impact on trade because of their cumulative effect. Not only are tariffs repeated when intermediate inputs are traded across borders multiple times, but also downstream firms face tariffs on the full value of their exports, including on their imported inputs and tariffs previously paid. Tariffs can add up to a significant level by the time the finished good reaches customers. Against this backdrop, the paper proposes an assessment of the cumulative impact of tariffs on exports of goods from OECD countries and key emerging economies, using the OECD Inter-Country Input-Output model. Effective rates of protection are calculated on the basis of value-added exports and taking into account the cumulative impact of barriers along the value chain.