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On Terms of Trade, Offshoring Ties, and the Enforcement of Trade Agreements

Author

Listed:
  • Subhayu Bandyopadhyay
  • Arnab K. Basu
  • Nancy H. Chau
  • Devashish Mitra

Abstract

This paper unpacks the role of offshoring in the enforcement of trade agreements. In a two-country model of task offshoring, we show that by depressing demand and thus demand for embodied labor, own-tariff effects on factor content weighted terms of trade are: (i) negative in upstream countries, backfiring on upstream workers, and (ii) positive in downstream countries which render imported labor tasks even cheaper. This progression in own-tariff effects on terms of trade along the supply chain presents a novel challenge to the effectiveness of dispute settlement rules designed to nullify unwarranted terms of trade gains. The pros and cons of deep trade integration as a remedy, involving well-enforced labor standards both upstream and downstream as an integral part of trade agreements, are highlighted.

Suggested Citation

  • Subhayu Bandyopadhyay & Arnab K. Basu & Nancy H. Chau & Devashish Mitra, 2022. "On Terms of Trade, Offshoring Ties, and the Enforcement of Trade Agreements," Working Papers 2022-039, Federal Reserve Bank of St. Louis, revised Apr 2023.
    • Handle: RePEc:fip:fedlwp:95250
    DOI: 10.20955/wp.2022.039
    Note: Publisher DOI: https://doi.org/10.1016/j.jebo.2025.107215
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    Keywords

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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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