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Effective Protection with Global Value Chains

Author

Listed:
  • Emily J. Blanchard
  • Mitchell W. Boice
  • Robert C. Johnson

Abstract

The effective rate of protection (ERP) is a widely-used tool to evaluate the joint impact of input and output tariffs on the net protection offered to individual sectors. Nonetheless, the theoretical foundations underlying the traditional ERP are decades out of date. In this paper, we provide fresh guidance for policy analysts that seek to measure effective protection, with two core elements. First, we develop a new ERP concept, which measures how much tariffs shift the derived demand for real value added at the sector level. The ERP then has an intuitive interpretation: it is the effective subsidy to buyers of sectoral value added that replicates the impact of the tariff structure on demand. Second, we demonstrate how to compute our ERP index accounting for global value chain linkages. The result is an ERP for the GVC age, in which effective protection depends on the structure of value chains across countries and sectors, and the structure of all tariffs applied globally. We demonstrate the usefulness of our approach by analyzing how recent tariff changes have altered effective protection in the United States and the rest of the world.

Suggested Citation

  • Emily J. Blanchard & Mitchell W. Boice & Robert C. Johnson, 2026. "Effective Protection with Global Value Chains," NBER Working Papers 34670, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34670
    Note: ITI
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    JEL classification:

    • F1 - International Economics - - Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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