Third‐country Effects of Regional Trade Agreements

Does regionalism negatively impact non‐members? To answer this question, we examine the effect of regional trade agreements (RTAs) on imports from non‐members and the tariffs that they face. Using data from six RTAs in Latin America and Europe, we do not find evidence that implementation of the regional agreements is associated with trade diversion from third countries to regional members. Using detailed industry data on preference margins and most‐favoured nation (MFN) tariffs for three trade agreements in Latin America over 12 years, we find that greater preference margins do not significantly reduce imports from third countries. We also look at the effect of preferences on external tariffs. We find evidence that preferential tariff reduction tends to precede the reduction of external MFN tariffs in a given sector, offering evidence of tariff complementarity. Overall, the results suggest that regionalism does not significantly harm non‐members.     

The Trade Effects of US Anti‐dumping Actions against China Post‐WTO Entry

Since China's entry into the WTO, US anti‐dumping (AD) actions against China have increased, particularly with respect to multiple petitions. Distinguishing between US single and multiple petitions, we examine the trade effects of US AD actions against China based on an unbalanced panel of quarterly trade data. The results show that a US single petition investigation greatly restrains US imports of the filed products from China but also causes more significant import diversion from non‐named countries. In the short run, a preliminary AD duty imposed on China via a US multiple petition not only restrains US imports of the filed products from China but also prevents trade diversion from non‐named countries. In the long run, a final AD duty on China resulting from a US multiple petition creates a larger destructive effect on China and causes US import diversion from non‐named countries. Thus, a final AD duty imposed on China following a US multiple petition not only harms China's exports but also fails to help the US achieve import substitution. Furthermore, we have been able to reveal the negative trade effect of a preliminary AD duty even in cases where the ultimate decision is not to impose a final duty.     

An asymmetric analysis of the J‐curve effect in the commodity trade between China and the US

This paper follows a non‐linear ARDL error‐correction approach to examine the presence of the J‐curve in the commodity‐level trade between the United States and China. The analysis disaggregates the US–China trade flows by commodities and separately examines the trade balance responses of 97 commodities to the changes in the real yuan–US$ exchange rates. The analysis at the commodity level alleviates potential aggregation bias that is present in earlier studies offering little evidence for long‐run asymmetric effects of exchange rate on the China–US trade balance. We find strong support for short‐run asymmetric effects in the case of two‐third of the commodities, whereas significant long‐run asymmetric effects are present in the case of one‐third of the commodities including those commodities which command large shares in the China–US trade.     

Anti‐dumping duty circumvention through trade rerouting: Evidence from Chinese exporters

We study the evasion of US anti‐dumping duties by some Chinese exporters through trade rerouting via third countries or regions. Using detailed monthly trade data reported by China and the US Customs during the period of 2002–06, we find that US anti‐dumping actions against China lead to a stronger positive correlation between US imports from third countries and Chinese exports to the same third countries. Such a positive correlation is more pronounced for the products subject to anti‐dumping duties (treatment groups) than similar products not subject to these duties (control groups). The evidence is stronger for less‐differentiated products whose certificates of origins are easier to be modified and is stronger for third countries where the rerouting cost is low. These findings are consistent with a trade rerouting story, rather than a simple story of trade diversion (i.e., increase in some third countries' imports from China) and trade deflection (i.e., increase in some third‐country exports to the US). We also rule out other alternative stories, consider prior production in third countries and concurrent anti‐dumping actions against China or third countries, pay a particular attention to the many zero trade flows in the monthly level data and check the robustness to using an alternative control group and quarterly data, etc.     

Trade Diversion as Firm Adjustment to Trade Policy: Evidence from EU Anti‐dumping Duties on Vietnamese Footwear

This paper evaluates the impact of the 2006 European Union anti‐dumping (AD) action on Vietnamese footwear in three markets: imports to the EU, footwear producers in Vietnam, and the trade diversionary adjustment of Vietnamese firms in the US market. We find that the AD action reduced Vietnamese imports to the EU by as much as 65 per cent. Given that the EU makes up almost two‐thirds of Vietnam's footwear exports and footwear is among the top four export industries for Vietnam, this reduction is economically significant. Consistent with predictions of our model, we find evidence of trade diversion by Vietnamese producers from the EU to the US market. Our difference‐in‐difference estimates of the AD actions on the value of Vietnamese footwear imports to the United States ranged from 69 to 71 per cent over the period 2004–07 and 69 to 72 per cent in terms of quantity. These results highlight the spillover effects of trade policy in third markets when firms adjust to trade barriers. Our results are robust to triple‐difference specifications where we adjust for trend differences and a series of placebo specifications.     

Free trade agreements in a small,open country: The case of Norway

Negotiating free trade agreements (FTAs) has been a high political priority for Norway. Today, it has agreements with 41 countries outside the European Union (EU)/the European Free Trade Association (EFTA), resulting in one of the world's most extensive FTA networks. FTAs cover about 10% of Norway's trade—a share likely to increase in the future. These agreements eliminate tariffs on a substantial number of traded products and have gradually become more comprehensive, covering an expanding range of non‐tariff areas. Hence, they may have trade‐promoting effects beyond tariff reductions as such. On the other hand, the non‐tariff provisions often do not go further than what has already been dealt with in other international agreements or practised domestically, so their overall effect may be limited.     

Cultural Distance and the US Immigrant–Trade Link

Using data from the World and the European Values Surveys, we calculate cultural distances between the US and 54 immigrant home countries and examine the influences of cultural distance and immigrant populations on US imports from and exports to immigrants’ home countries during the years 1997–2004. Our study indicates that, for both US imports and exports, the trade‐enhancing effect of immigrants partially offsets the trade‐inhibiting effect of cultural distance. Further, decomposing our measure of cultural distance into two component dimensions and revisiting the immigrant–trade relationship, we find significant variation in the extent to which immigrants counter the trade‐inhibiting influences of the underlying dimensions of culture for both US imports and exports. Our findings have the implication that by countering the trade‐inhibiting influences of cultural differences between their home and host countries, immigrants exert pro‐development effects.     

Trade Creation and Diversion Effects of Regional Trade Agreements: A Product‐level Analysis

This paper examines the impacts of regional trade agreements (RTAs) on trade flows at product level, with a particular focus on trade creation and diversion. Based on estimation of the gravity equation, dealing with the zero trade flows and endogeneity bias problems, we analyse the impacts of various types of RTAs involving 67 countries for 20 products during the 1980–2006 period. We find that RTAs among developing countries tend to cause trade diversion compared with RTAs among developed countries. Taking the higher external tariff rates of developing countries compared with developed countries into consideration, our results suggest trade diversion is likely to be caused by remaining high tariffs on imports from non‐members. In addition, we find the trade creation effect for many products in the cases of Customs Unions and plurilateral RTAs. These results imply that trade creation would be caused by various factors besides the reduction in tariff rates. Based on these results, we draw a policy implication that external tariff rate reduction is an important factor in avoiding trade diversion in the formation of RTAs, in particular for RTAs among developing countries, while a large number of members and the common external tariff appear to be important for generating the trade creation effect.     

US Economic Sanctions Against China: Who Gets Hurt?

The United States maintains a broad spectrum of economic sanctions against China ranging from export controls to prohibitions on certain imports. Our study finds that, although from a macroeconomic perspective, US sanctions have had no significant adverse effect on China's overall economic growth and trade between the two countries, they do have a negative impact on producers and consumers in both countries. US economic sanctions have hindered technology transfer to China and US investment in China. US restrictions on imports from China have caused deadweight losses for the US due to higher domestic production costs for import substitutes and a reduction in consumption. US export controls have hindered US exports to China and contributed to large US trade deficits with China. The export controls have also caused losses of high‐paid jobs in the United States and benefited competitors from other countries. In addition, US economic sanctions against China have had significant third‐party effects. China's diversification of imports to sources other than the United States may have a long‐term effect on US exports to China even after US economic sanctions against China are lifted.     

The effects of bilateral attitudes on imports

Research based on the gravity model has shown that non-economic factors affect international trade, and recent studies have shown that people's perception affects economic exchange. In this study, we explore the effects of attitudes on bilateral trade. Using survey data from the Pew Research Center's Global Attitudes Projects for 68 countries from 2002 to 2015, we find that a more favourable attitude of a country towards another country will increase the former country's imports from the latter. The result is robust to an endogeneity check, to different measures of attitudes and to different estimation methods. However, heterogeneity is observed across different types of goods and countries. The result holds for trade in intermediate and consumer goods, but the effects are not statistically significant for capital goods. The effects are statistically significant for bilateral trade between different country groups, except for high-income countries' imports from non-high-income countries.     

The de minimis threshold in international trade: The costs of being too low

With tariffs largely negotiated away, trade facilitation issues such as custom delays and border costs are one of the next key barriers for trade policymakers to address. One important trade facilitation issue is the de minimis threshold (DMT )—a valuation ceiling for imports below which no duty or tax is charged and the clearance procedures are minimal. Customs assessments are costly and low thresholds can hinder trade flows. We offer a detailed analytical approach to assess the direct economic effects of raising the DMT . We focus on Canada, which has one of the lowest DMT s among developed countries. We utilise a unique data set and find that raising Canada's DMT would have positive effects for consumers and businesses, particularly small businesses because the cost saving for smaller entities is disproportionately large. For the government, foregone duty and tax revenues are outweighed by the cost saving, resulting in a fiscally neutral or even positive effect for government revenues.     

Assessing the impact of unilateral trade policies EBA and AGOA on African beneficiaries' exports using matching econometrics

The existing literature studying the impact of non‐reciprocal preferential trade agreements (NRPTAs) assumes implicitly NRPTAs are non‐randomly assigned without showing the evidence of that. Using a matching methodology, this paper investigates whether the “African Growth and Opportunity Act” (AGOA) and the “Everything But Arms” (EBA) unilateral trade concessions have had an impact, and in what magnitude, on the exports of African beneficiary countries in the light of the evidence of the non‐random nature (endogeneity) of NRPTAs. Methodologically, previous studies using the matching procedure focused on bi or multilateral trade agreements. Our work focuses on NRPTAs that depend only on donors' conditions. Accordingly, we show that for NRPTAs, gravity covariates cannot be used for the matching procedure. We propose to use political variables as determinants for obtaining non‐reciprocal trade preferences in order to address the endogenous nature of NRPTA assignment. Our main results confirm that a country becomes eligible for a NRPTA only when it meets certain conditions, defined by their donors, such as political stability and economic regulation (for AGOA), and freedom of expression and human development (for EBA). Results also show that both AGOA and EBA policies have had a positive impact on African beneficiary countries' exports to NRPTA's providers, even if the magnitude impact of EBA is significantly lower than that of AGOA.     

Putting Canada in the penalty box: Trade and welfare effects of eliminating North American Free Trade Agreement

Three years ago, very few economists would have imagined that one of the newest and fastest growing research areas in international trade is the use of quantitative trade models to estimate the economic welfare losses from dissolutions of major countries' economic integration agreements (EIAs). In 2016, "Brexit" was passed in a UK referendum. Moreover, in 2019, the existence of the entire North American Free Trade Agreement (NAFTA) is at risk if the US withdraws—a threat President Trump has made if the proposed US–Mexico–Canada Agreement is not passed by the US Congress. We use state‐of‐the‐art econometric methodology to estimate the partial (average treatment) effects on international trade flows of the six major types of EIAs. Armed with precise estimates of the average treatment effect for a free trade agreement, we examine the general equilibrium trade and welfare effects of the elimination of NAFTA (and for robustness US withdrawal only). Although all the member countries' standards of living fall, surprisingly the smallest economy, Mexico, is not the biggest loser; Canada is the biggest loser. Canada's welfare (per capita income) loss of 2.11% is nearly two times that of Mexico's loss of 1.15% and is nearly eight times the US' loss of 0.27%. The simulations will illustrate the important influence of trade costs—international and intranational—in contributing to the gains (or losses) from an EIA's formation (or elimination).     

International Trade and Economic Growth Nexus in Australia: A Robust Evidence from Time‐Series Estimators

This study examines the effects of international trade on output and tests the null of Granger non‐causality between trade and economic growth in Australia. The single‐equation IV‐GMM, DOLS, FMOLS and NLLS and the system‐based ML estimates consistently support the positive and significant long‐run effects of exports and investment on output. The effects of imports are consistently negative across all the estimates. The OLSEG, RLS and ARDL‐ECM estimates provide a mixed and weak and that overparameterised level‐VAR estimates no support for the effects of trade on output. The estimates of the model with structural breaks provide a dominant support for the cointegrating relationship among variables. In conclusion, the evidence supporting the positive and significant long‐run effects overwhelms the evidence providing a mixed, weak or no support for the effects of trade on output. The results of the study can be inductively generalised to mimic the findings of the literature at large and to suggest that a part of the inconclusiveness over the gains of trade could analogously be ascribed to the use of different methodologies and test statistics across studies. The results support the acceleration of exports and investment to foster the higher levels of output and economic growth.     

Competitive pressure,innovation and trade protection: Evidence from US patent data

Recent theoretical models have suggested that the relationship between competition and innovation may best be characterised as an inverted‐U shape: firms in industries with low levels of competition are more likely to innovate in the wake of increased competition as they attempt to escape competition, while those in highly competitive industries will decrease innovation in the wake of increased competition as the profit incentive to innovate dissipates. Results from other studies have found positive as well as negative relationships between innovation and competition. In a parallel literature, trade economists have produced conflicting results regarding the impact of trade liberalisation on innovation. One stream of research has shown that increased access to imported intermediate goods increases productivity, suggesting a positive relationship between imports and innovation. Others have hypothesised that firms may use the technology embodied in intermediate inputs as a substitute for domestic innovation. In this paper, we merge these divergent literatures and investigate whether innovation, as measured by the production of patents by US manufacturers, has been impacted by market competition and tariff reductions. Our empirical findings indicate that insulation from imports in the form of higher tariffs on final goods was associated with innovation until the late 1980s, while falling tariffs on intermediate goods appear to have facilitated innovation during the 1990s. We also find evidence of the inverted U‐shaped relationship between market competition and innovation.     

The asymmetric effects of tariffs on intra-firm trade and offshoring decisions

This paper studies the effects of tariffs on intra-firm trade. Building on the Antràs and Helpman (2004) North–South theoretical framework, I show that higher Northern tariffs reduce the incentives for outsourcing and offshoring, while higher Southern tariffs have the opposite effects. I also show that increased offshoring and outsourcing imply a decrease in the ratio of Northern intra-firm imports to total imports, an empirically testable prediction. Using a highly disaggregated dataset of U.S. (the North) imports and relevant U.S. and foreign tariffs, I find robust evidence to support the model's predictions.     

Computational Analysis of the Menu of US‐Japan Trade Policies

We have used the Michigan Computable General Equilibrium (CGE) Model of World Production and Trade to calculate the aggregate welfare and sectoral employment effects of the menu of US‐Japan trade policies. The menu of policies encompasses the various preferential US and Japan bilateral and regional free trade agreements (FTAs) negotiated and in process, unilateral removal of existing trade barriers and global (multilateral) free trade. The welfare impacts of the FTAs on the United States and Japan are shown to be rather small in absolute and relative terms. The sectoral employment effects are also generally small but vary across the individual sectors depending on the patterns of the bilateral liberalisation. The welfare effects on the FTA partner countries are mostly positive though generally small, but there are some indications of potentially disruptive employment shifts in some partner countries. There are indications of trade diversion and detrimental welfare effects on non‐member countries for some of the FTAs analysed. In comparison to the welfare gains from the US and Japan bilateral FTAs, the gains from both unilateral trade liberalisation by the United States, Japan and the FTA partners, and from global (multilateral) free trade are shown to be rather substantial and more uniformly positive for all countries in the global trading system. The US and Japan FTAs are based on ‘hub’ and ‘spoke’ arrangements. We show that the spokes emanate out in different and often overlapping directions, suggesting that the complex of bilateral FTAs may create distortions of the global trading system.     

Asymmetric effects of demand uncertainty on intrafirm trade in durable and non‐durable industries

This paper unveils a new empirical regularity regarding the asymmetric patterns of international sourcing modes in the durable and non‐durable industries under uncertainty, and explains the asymmetry based on the traditional lens of the transaction cost economics. Under demand uncertainty, firms face trade‐offs between outsourcing and vertical integration: while outsourcing requires less initial investment and allows easier market entry and exit, vertical integration offers better management and communication systems. In the durable industries, consistent with the transaction cost economics, the relationship between vertical integration and uncertainty is positive. In the nondurable industries, however, such relationship is weaker because inelastic demand and shorter gaps between production and sales mitigate the effect of uncertainty. I show the asymmetric effects of uncertainty based on a simple general equilibrium model and provide consistent empirical evidence using US intrafirm trade and microeconomic uncertainty data.     

Trade reform and firm-level labor demand in Cameroon

This paper investigates the impact of trade (tariffs and import penetration) and foreign direct investment (FDI) on labor adjustment and labor-demand elasticities in Cameroonian manufacturing sector. Unlike previous studies, I distinguish the effect on different skill groups of employees. Using firm-level data pooled across sectors, I find that trade openness leads to faster adjustment of different labor inputs with a higher speed for unskilled workers. Tariff liberalization does not have any statistically significant effects on labor-demand elasticities. I find strong evidence for the impact of imports on skilled-labor-demand elasticity when I replace tariffs with import-penetration ratios. I also find strong evidence that FDI inflows strongly increase unskilled-labor-demand elasticity. The sector-level results do not alter the previous findings.     

A Note on Impacts of International Trade on Economic Growth and Inflation

Results of this study indicate that short- and long-term effects of international trade on inflation, GDP, and inflation-adjusted GDP growth vary over periods with fixed or freely floating exchange rates or a big accumulated trade deficit. Causalities between trade and other macroeconomic variables are also different in different periods.

This study does not find supportive evidence that “phantom GDP gains” may significantly change impacts of imports on productivity, CPI, and inflation-adjusted GDP and causalities between imports and other macroeconomic variables, although a structural break is found in the relationship between imports and GDP at the beginning of 2003.