BILATERAL TRADE RELATIONSHIP BETWEEN THE UNITED STATES AND CANADA: IMPLICATIONS OF THE FREE TRADE AGREEMENT

This study's primary objective is to evaluate empirically the economic effects of the U.S.-Canada Free Trade Agreement (FTA). The paper emphasizes bilateral trade flows of agricultural and industrial products between the United States and Canada, given that the FTA removes tariff and non-tariff barriers. It evaluates the FTA's impact on the two countries' trade with third countries. The paper specifies a traditional log-linear trade model consisting of import demand and export supply equations for both agricultural and industrial products. It uses quarterly time-series U.S. and Canadian trade data for 1972–1985.
The study uses the two-stage least-squares estimator to estimate the models. The models had R coefficients ranging from 0.78 to 0.99, indicating that the models' explanatory variables explain most causes of variations in the dependent variable. This study reveals that U.S. imports of agricultural and industrial products from Canada were more sensitive than were Canadian imports not only to import and domestic prices but also to world prices. This is because Canadian consumers have less domestic substitutes than do their U.S. counterparts. Also, Canada has a smaller internal market than does the United States. The study estimates that U.S. imports from Canada will increase $2.8 billion while Canadian imports from the United States will increase $1.2 billion. The impact on the two countries' trade with third-party countries will be insignificant.     

NORTH AMERICAN FREE TRADE AGREEMENT BILATERAL TRADE EFFECTS

This study evaluates the effects of the North American Free Trade Agreement (NAFTA) on bilateral trade between the United States and Canada and between the United States and Mexico. Trade flow estimates are from a vector autoregression (VAR) model. The VAR methodology allows modeling bilateral trade in a flexible manner that incorporates both the interaction between different variables and the dynamics of trade, output, prices, and the exchange rate. After testing the outside sample forecasting ability of the models, the study produces dynamic forecasts of bilateral trade. It then compares forecasts incorporating the effects of the NAFTA with baseline forecasts. The results suggest expanded trade for all three countries and an improvement in the U.S. trade position with both Canada and Mexico.     

Tariff evasion and rules of origin violations under the Canada‐U.S. Free Trade Agreement

Abstract Using product‐level data on trade between Canada and the U.S., this paper presents evidence of tariff evasion and violation of the rules of origin occurring under the Canada‐U.S. Free Trade Agreement (CUSFTA). It shows that more imports go unreported at the destination country when tariffs are higher. Consistent with the tariff evasion hypothesis, this result implies that the trade creation effect of a free trade agreement may in fact be due to less underreporting. Further, this paper shows that the larger Canadian tariff preference margin for the U.S. is associated with more goods originating in third countries being transshipped through the U.S. territory for re‐export. The preference margin is also positively correlated with the value of excess imports from the U.S., which qualify for preferential treatment. Both results suggest the presence of persistent violations of CUSFTA’s rules of origin.     

Understanding the recent Sino-U.S. trade conflict

ABSTRACT

To understand Sino-U.S. trade relations, this article interprets the trade imbalance between China and the United States from the Trump administration’s perspective. The Trump administration claims that the Chinese government’s subsidies and high import tariffs cause the Sino-U.S. trade deficit, resulting in job losses in the U.S. The Trump administration therefore argues that imposing high tariffs on Chinese exports can resolve the deficit. The article finds that U.S. statistical accounting overestimates the deficit. Reducing China’s imports cannot increase U.S. employment, and China provides the United States with low-price and high-quality products. Chinese investors tend to invest the surplus by purchasing U.S. Treasury bonds. In addition, the United States limits Chinese investments due to ‘national security’ concerns. China’s upgrading to the high end of the global value chain is a consequence of economic development. Therefore, the two countries should rebalance Sino-U.S. trade by seeking economic and trade cooperation via trade negotiations.     

Intrafirm trade and the developing countries: an assessment of the data

The state of general empirical knowledge of the extent of and trends in intrafirm international trade are surveyed with attention concentrated on United States and Canadian data sources. Focus is on conceptual and definitional distinctions, U.S. trade with U.S. majority-owned foreign affiliates, U.S. related-party imports, international subcontracting and value added tariffs, aggregative data from individual developing countries, and customs documents as micro-level data soruces. In this effort to outline the reasons for the growing concern with the phenomenon of intrafirm trade and to summarize the most readily available data on its nature and growth, the following were among the important points made: 1) it is essential to arrive at clear and uniform definitions as to what is meant by "intrafirm trade"; 2) the share of U.S. non-petroleum imports from developing countries which originates in majority-owned foreign affiliates of U.S. firms is declining; 3) very high proportions of some U.S. imports from developing countries originate with "related parties," and there are frequently large differences between import unit values in related-party trade and those in non-related-party trade; 4) international subcontracting, as indicated by the usage of value added tariff provisions, continues to be a rapidly growing element in manufactured goods trade between the U.S. and developing countries; and 5) further data should be collected and empirical research conducted.     

TRADE,WAGES, AND PRODUCTIVITY

We develop a general equilibrium monopolistic competition model in which wages, productivity, consumption diversity, and markups respond to trade integration. We structurally estimate the model and simulate the impacts of removing all trade barriers generated by the Canada–U.S. border. Firm selection gets tougher by 8.09% in Canada and by 0.80% in the United States. Markups that consumers face, which are central to welfare, fall by up to 12.11% in Canadian provinces and by up to 2.82% in U.S. states. However, changes in markups measured at the firm level are ambiguous, thus providing a different piece of information.     

COMPETITIVE NEED LIMITS AND THE U.S. GENERALIZED SYSTEM OF PREFERENCE

The United States uses competitive need limits to deny Generalized System of Preferences (GSP) treatment of imports from developing countries. The analysis here estimates in two ways the effect of competitive need limits on GSP imports. First, it uses ex post trade data to determine the effect on import values and shares. Second, it combines an ex ante model with trade and elasticity data to estimate the effect of competitive need limits. Results indicate that competitive need limits reduce affected imports by 10 to 17%. Benefits from this import reduction accrue almost exclusively to U.S. import competing firms.     

美国购油策略分析及对中国的启示

美国页岩油革命改变了美国原油贸易格局，使得美国进口原油品质趋于重质化，且地域来源趋于集中化。本文通过挖掘页岩油革命后美国原油进口策略转变的内在原因，提出美国国内页岩油需求与对加拿大原油进口之间存在互补效应，而与对欧佩克原油进口之间存在替代效应，并通过协整检验和格兰杰因果关系检验，分析了美国页岩油需求和对各国原油进口的互动关系。本文的研究结果对中国的页岩油战略和中美原油贸易关系均有重要的政策启示。     

Partisan Cycles in Offshore Outsourcing: Evidence from U.S. Imports

The wage and employment effects of offshoring roil politics in the United States and around the world. Firms that offshore either outsource their activities to unaffiliated businesses, or internalize production by establishing subsidiaries from which they import intrafirm. We argue that the political environment in trade partner countries influences U.S. offshoring patterns in ways that have been ignored in the extant literature. Drawing on the political business cycle literature, we expect higher production costs and lower profits for firms in capital (labor) intensive sectors when the Left (Right) is in power. These partisan cycles, in turn, shape the sectoral composition of exports from the partner to the United States, and the degree to which trade is conducted intrafirm. Under a Left‐ (Right‐) leaning government in a partner country, U.S. intrafirm imports of capital‐ (labor‐) goods increase relative to total imports in these industries. Examining highly disaggregated U.S. import data, we find strong support for our argument. Our results indicate that the effect of partisan governments on offshore outsourcing depends on factor intensities of production, which vary across industries. The degree of internalization in global sourcing is shaped in part by the distributional objectives of partisan governments, and not by economic factors alone.     

Intraindustry Specialization and the Proposed Korea–United States Free Trade Agreement

Changes in intraindustry specialization indicators over the 2000–2007 period are used to assess factor adjustment pressures that may arise in Korea from the proposed Korea–United States Free Trade Agreement (KORUS FTA). There is considerable scope for intraindustry specialization between Korea and the United States. Results show few industries in Korea are candidates for adjustment problems. The 14 industries that may face adjustment pressures account for 13% of all Korean imports from the United States. Long tariff phase-out periods, tariff-rate quotas and import safeguards will be used to ease factor adjustment pressures in import-sensitive industries.     

Inventories and antidumping: the case of orange juice trade

The United States and Brazil are key players in the international market for orange juice, mainly frozen concentrated orange juice (FCOJ). The U.S. orange juice industry benefits from one of the highest levels of import protection in U.S. agriculture. Additional trade protection was recently added with a U.S. industry victory in an antidumping trade suit against Brazil. We study the impact of FCOJ imports from Brazil on U.S. prices using time series econometric models and find only a weak FCOJ domestic price response to imports from Brazil, because extremely large U.S. inventories mute the price impact of any fluctuation in imports. Our findings imply that the antidumping tariffs were unjustified based on a material injury argument.     

THE IMPACT OF TAX REGIMES ON INTERNATIONAL TRADE PATTERNS

This paper discusses the trade implications of value‐added taxes (VATs) that refund domestic taxes paid by exporters of domestic production while imposing taxes on imports of foreign production. VATs are used by over 140 countries of the world, including every member of the Organisation for Economic Co‐operation and Development except the United States. An investigation of the implications of border‐adjustable taxes on the U.S. trade balance suggests that VATs positively affect trade competitiveness but with differing impacts by sector. These results do not necessarily extend to the conclusion that a U.S. VAT would increase U.S. exports; such a prediction requires economic forecasting and appropriate simulations. The present results do imply that the adoption of VATs by other countries appears to have benefited U.S. trade. Panel data over 20 years, 29 industries, and 145 countries is used to conduct the analysis. (JEL F10, H20, K34)     

OF MICE AND ELEPHANTS: THE CANADA-U.S. FREE TRADE AGREEMENT

This paper critically assesses the free trade agreement between Canada and the United States. Reviewing the theoretical literature on the gains from trade and the empirical literature on bilateral trade liberalization reveals that no presumption should exist that bilateral free trade would significantly improve Canada's welfare. Moreover, because of uncertainty over future abrogation or contingent protection actions, much of the predicted rationalization of Canadian industry may not occur. If, on the other hand, firms in Canada make major investments to take advantage of the agreement, Canada's bargaining position with the United States on trade and other issues could be weakened.     

浅析美国在华直接投资与中美贸易的关系

贸易和投资——世界经济全球化的两个主要推动力量,日益向着一体化的方向发展。随着经济全球化的日益深入,中美两国的经贸联系越发密切。美国是当今世界经济的主要引擎之一,其在华的直接投资对中关进出口贸易产生着举足轻重的影响。文章分析了美国在华直接投资与中关贸易的发展趋势及其特点,并在此基础上探讨了美国对华投资与中关贸易互相促进的关系。     

The “export-import” effect and economic growth

This paper proposes that singular improvements in productivity and growth are a result of increased exports and imports, especially in the manufacturing sector, but that sustainable increases in growth can only emerge through industrial diversification. Trade liberalizations between Canada and the United States have caused a narrowing of manufacturing productivity differentials, a predominance of intraindustry trade, and a positive Canadian trade balance for manufactured end products and fabricated materials. Sustained growth, however, relies more on the diversification of the industrial structure. Toward this end, Canadian trade policies should: (1) concentrate productivity in the exportable, rather than importable, sectors, (2) rationalize and specialize between rather than within industries, (3) encourage two-way trade in each industry, (4) liberalize trade gradually to avoid interindustry disruptions, and (5) redirect job real- location funds toward worker retraining and firm-specific modernization programs.     

Import competition,fast-track authority and U.S. policy toward China

Has the rise of China influenced U.S. legislation? China’s economic rise in the past 30 years has largely been driven by its exports of labor intensive products. Taking advantage of this supply shock in the United States and cross-district variation in the composition of industries, we investigate the potential role of Chinese imports in U.S. legislators’ decision on granting Fast-Track Authority to the president. Consistent with Conconi et al. (2012), our empirical analyses indicate that in districts with more industries that are exposed to Chinese import competition, legislators are less likely to give up the power to amend international trade agreements. Interestingly, Chinese imports may distort the view of constituents toward China which render legislators in districts subject to large Chinese import competition to take an affirmative position on foreign policy that may hurt China.     

The economic effect of the Canadian BSE outbreak on the US economy

Before the discovery of the first Bovine Spongiform Encephalopathy (BSE) cow in May 2003, Canada was the most important exporter of live cattle into the US with a share of 74% of US total live cattle imports. With the outbreak of BSE in Canada, the US ceased imports of Canadian cattle and beef products. This study analyses the short to medium-term effect of the import trade ban for the US economy using a 20 sector, economy wide Computable General Equilibrium (CGE) model. Uncertainty about exogenous elasticity values was addressed using Monte Carlo techniques. Beneficiaries of the trade ban are the cattle industry and related sectors, such as feed production and agricultural service providers. The US economy as a whole, however, is negatively affected with a loss of ～$-1.7 billion in gross domestic product and –11000 jobs. The model shows how the restriction on Canadian cattle imports generates income losses for both rich and poor households in the US.     

DRIFTING APART: CANADIAN AND U.S. LABOR MARKETS

Canadian and U.S. unemployment rates moved together within a narrow margin from 1961 to the mid-1970s. Since then, Canadian rates have exceeded U.S. rates by large margins—at times as much as 3 percentage points. Throughout this period, interest rates in the two countries have been nearly identical. Aggregate demand stimulation by government deficits has been greater in Canada than in the U.S., and the trade surplus in Canada has added to demand while the trade deficit in the U.S. has subtracted from demand. Therefore, it seems that conventional Keynesian arguments cannot explain the recent differences in unemployment rates.
Differences in labor market developments, however, can do so. During a period when real wages rose 35 percent in Canada, they fell 5 percent in the U.S. Since the recession of 1981, U.S. wages have dropped while Canadian wages have remained constant. Differences in labor productivity do not account for these developments. A strong case exists for the argument that the different paths of unemployment rates are due to different paths of real wage developments.
It is argued that the causes for these differences in labor market conditions are associated with substantial growth and decreases in unionization rates in Canada and the U.S., respectively. In addition, the unemployment insurance system in Canada is shown to be considerably more generous than that in the U.S.     

Liberalizing U.S. Trade with the Eastern Bloc: What are the consequences?

This paper provides estimates of the trade and welfare consequences of removing the high discriminatory tariffs that the United States imposes against imports from the Soviet Union and its allies. These imports are now taxed at Smoot-Hawley rates. The estimates of the trade effects exceed those of previous studies, in part because the recent “Tokyo Round” of multilateral trade concessions has increased the tariff discrimination against the non-MFN (Most Favored Nation) suppliers. The study is the first to assess the welfare consequences of eliminating this discrimination. It is estimated that the overall annual gain to the United States would be about $1.8 billion and that the annual gain to the communist suppliers would be between $1.2 billion and $1.7 billion.     

贸易统计差异与中美贸易平衡问题

本文研究发现(1)中美进出口计价方式不同和运输时滞导致双边贸易统计数据存在差异是自然的。(2)参照剔除香港转口毛利后中美贸易新估计值,1995—2003年美国对华出口低估年均在24%以上,从华进口高估年均在35%以上,而中国对美出口低估年均在20%以上,从美进口相对没变。(3)考虑服务贸易后,美中商品与服务贸易逆差估计值与中国对美贸易顺差新估计值已相当接近。上述结果得到IMF数据的证实。(4)外商在华直接投资增加会造成中国对美出口增加、对美贸易顺差增加。依据中美两国月度数据计量的结论是相一致的。这一结果证实中美贸易平衡问题已超越中美两国贸易范围而成为外商在华直接投资所引致的贸易逆差转移问题。剔除外资企业进出口贡献及贸易统计差异后,中国对美贸易估计值已非常趋近于美国对华贸易估计值。