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1. The Regressive Nature of the U.S. Tariff Code: Origins and Implications

Author:
Lydia Cox
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Tariffs are often thought of as taxes that fall uniformly across goods or industries. In reality, however, the U.S. tariff schedule is extremely complex—the modern‐​day tariff code comprises 4,394 pages of tariffs on 19,347 varieties of goods. As a result, there is a lot of variation in tariff rates, even within narrowly defined categories of goods. We study this complexity through the lens of a little‐​known but consequential pattern in the modern U.S. tariff schedule: tariff rates are systematically higher on low‐​value versions of goods relative to their high‐​value counterparts. For example, the tariff on a $400 handbag made of reptile leather is 5.3 percent, while the tariff on an $8 plastic‐​sided handbag is 16 percent. Through a comprehensive analysis of U.S. tariffs over the past 100 years, we show that this regressive pattern is, and has been, a systematic feature of tariffs for decades. Our findings are emblematic of a more fundamental feature of U.S. tariff policy: tariffs set to meet policy objectives of the past have persisted through vast changes in the economic landscape and, despite their historical origins, are still affecting consumers today.
Topic:
Economics, Tariffs, and Trade Policy
Political Geography:
North America and United States of America

2. Divergence in Non-Tariff Measures and the Quality of Traded Products

Author:
Doan Thi Thanh Ha, Kunhyui Kim, and Mahdi Ghodsi
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Non-tariff measures (NTMs) constitute a grey area where trade policy meets public policy goals. NTMs comprise a diverse set of regulatory policy measures, including testing and certification, rather than traditional international trade policy measures such as tariffs or tariff-rate quotas. Regulatory NTMs protect plants, animals, humans, and consumers from imported harmful products containing diseases; regulate the use of hazardous substances in production; ensure conformity with common standards; and protect the environment. Trade literature has focused on the impact of NTMs on trade flows, whereas few studies address the potential welfare-improving effects of these measures. This paper fills this gap by examining the relationship between NTM applications and the quality of traded products. Two questions are addressed. First, do more or additional burdens of NTMs in the foreign market incur a higher quality of exported products? Second, is the quality impact of NTMs in different sectors different between food and other manufacturing goods? We adopt a recently developed indicator to capture the additional requirements for exporters stemming from importers’ imposition of NTMs, and a quality estimator that controls for price. Our empirical results indicate that, overall, divergence in sanitary and phytosanitary (SPS) measures between the two trading partners reduces the quality of traded goods. Furthermore, while the divergence in SPS measures reduces the quality of traded goods in the manufacturing sector, the divergence in technical barriers to trade shows no statistically significant impact on the quality of traded goods between the two trading partners. The results imply that additional costs from technical barriers to trade are negligible compared with those from SPS measures in the manufacturing sector.
Topic:
Regulation, Tariffs, Public Policy, and Trade
Political Geography:
Global Focus

3. The Evolution of the Global Trading System: How the Rise of Asia and Next Generation Trade Will Shape the Future Economy

Author:
Shay Wester
Publication Date:
11-2022
Content Type:
Special Report
Institution:
Asia Society
Abstract:
Over the last seventy years, global trade flows have grown to an unprecedented level, facilitated by the lowering of tariffs and the creation of a shared set of rules. The Asia Pacific region has been central to this remarkable growth, with trade volumes nearly quadrupling in the last twenty years. Asian countries view trade as a critical tool to grow their economies, strengthen supply chain resiliency, create jobs, foster development, attract foreign direct investment, and promote innovation. As a result, they have been on the forefront of concluding trade agreements, and in the process tackling emerging issues through innovative approaches. In the meantime, many of the existing institutions, groupings, and approaches that have supported a strong rules-based trading system have not sufficiently stepped up to address emerging challenges. In particular, negotiating efforts at the World Trade Organization (WTO) have largely stalled with WTO members to date unable to forge consensus on pressing trade matters affecting climate, health, and digital, to name just a few. Additionally, as the scope of trade agreements has expanded over time, concluding comprehensive agreements has become more difficult. Finally, increased geopolitical tensions have impacted the multilateral trading system’s ability to function and thus respond effectively to new challenges. A new Asia Society Policy Institute (ASPI) report, The Evolution of the Global Trading System: How the Rise of Asia and Next Generation Challenges Will Shape the Future Economy, by ASPI's Shay Wester, explores next-generation trade challenges where new rules and new approaches will be needed. It concludes with observations on how these changes are reshaping the global trading system and examines how governments will need to adapt going forward.
Topic:
International Trade and Finance, World Trade Organization, Economy, and Tariffs
Political Geography:
Asia

4. How carbon tariffs and climate clubs can slow global warming

Author:
Shantayanan Devarajan, Delfin S. Go, Sherman Robinson, and Karen Thierfelder
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Slowing global warming requires countries to reduce carbon emissions, which imposes costs on their economies. To be effective, most countries must agree collectively to participate (e.g., the Paris Agreement, COP26). However, every country has an incentive not to comply and still reap the benefits of other countries’ actions—a classic free-rider problem. This paper evaluates recent recommendations to use trade policy to solve the free-rider problem associated with climate mitigation strategies. It shows that the European Union’s carbon border adjustment mechanism (CBAM tariffs) are effective at offsetting the unfair competitive advantage of noncompliant countries in the markets of compliant countries but have little effect on the trade of noncompliant countries, who can divert trade to other noncompliers. CBAM tariffs alone have little impact on global CO2 emissions. The paper also examines “climate clubs” (coalitions of countries that agree to impose carbon taxes or other equivalent policies and impose punitive tariffs on non-club members to induce them to join the club). It finds that punitive climate club tariffs can be effective in inflicting significant damage on the economies of nonmembers, providing a strong incentive for them to join the club. The paper identifies trade dependence between club and non-club members as an important consideration for the success of a climate club. Club members that are strongly linked to non-club members suffer losses when the club punishes non-club members, which would make them hesitant to impose punitive tariffs on a major nonmember trading partner.
Topic:
Climate Change, Economics, Tariffs, and Carbon Emissions
Political Geography:
Global Focus

5. The Black Hole of National Security: Striking the Right Balance for the National Security Exception in International Trade

Author:
James Bacchus
Publication Date:
11-2022
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Article XXI of the General Agreement on Tariffs and Trade (GATT) reserves for members of the World Trade Organization (WTO) the legal authority to restrict trade in goods to protect members’ “essential” security interests. Similar exceptions to WTO trade obligations exist in other WTO agreements. For more than seven decades, WTO members exercised self‐​restraint in invoking these exceptions, doing so only for narrow purposes and in truly exceptional circumstances to avoid pushing the boundaries of the law too far and thereby upending the delicate balance between members’ legitimate pursuit of their security interests and their obligations to reduce barriers to trade. Yet, trade restrictions justified on national security grounds have proliferated in recent years and are increasingly subject to litigation in WTO dispute settlement. As a result, the national security provisions contained within the WTO agreements, as well as fundamental questions about the nexus between trade and national security, are set to be tested and clarified by WTO jurists—a less than ideal outcome that could lead to the further undermining of WTO dispute settlement and the rules‐​based international trading system more broadly. This paper explains the origins of the national security exceptions in the GATT and the WTO agreements and the history of their invocation, summarizes recent litigation that has clarified these exceptions, discusses current developments and upcoming litigation that could prove pivotal to our understanding of the trade‐​security nexus and the future of the world trading system, and offers some concluding thoughts on the options available to WTO members for striking a balance between trade liberalization and the defense of national security.
Topic:
International Trade and Finance, National Security, World Trade Organization, and Tariffs
Political Geography:
Global Focus

6. Impact of the Regional Comprehensive Economic Partnership (RCEP): A Global Computable General Equilibrium (CGE) Simulation

Author:
Ken Itakura
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study estimates the potential economic effects of the Regional Comprehensive Economic Partnership (RCEP) by using a recursively dynamic computable general equilibrium (CGE) model, which incorporates the global supply chains (GSCs) structure, also referred as the global value chains (GVCs). The tariff reduction schedules for the RCEP agreement are incorporated in addition to other large FTAs, such as the CPTPP. Second, the structure of GSCs is included in the CGE model to take into account the importance of trade in intermediate goods and services. This study implements the RCEP simulation scenarios for tariff reductions, services trade liberalization, logistic improvements, and investment commitments. Results show that the real GDP of RCEP members increases by $675 billion in total, of which ASEAN grows by $160 billion
Topic:
Economics, International Trade and Finance, Tariffs, and Supply Chains
Political Geography:
Global Focus

7. How Preferential are RCEP Tariffs?

Author:
Kazunobu Hayakawa
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study discusses the extent to which the tariffs provided in the Regional Comprehensive Economic Partnership (RCEP) are preferential. RCEP does not necessarily adopt a common concession rule in tariffs, and the speed and depth of tariff reduction/elimination also differ by country. We show that RCEP tariffs become the best choice in trading some specific products with some specific countries in some specific years. Furthermore, there are some specific cases where the use of RCEP tariffs becomes beneficial even if RCEP tariffs are not lower. Therefore, we demonstrate that RCEP tariffs are beneficial in specific types of supply chains. In short, this study aims to enhance our comprehensive understanding of how preferential RCEP tariffs are compared with other types of available tariffs.
Topic:
Diplomacy, Regional Cooperation, Tariffs, and Economic Cooperation
Political Geography:
Asia and ASEAN

8. Biden and Trade at Year One: The Reign of Polite Protectionism

Author:
James Bacchus
Publication Date:
04-2022
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
As a presidential candidate, Joe Biden promised a change from the go‐​it‐​alone, my‐​way‐​or‐​the‐​highway approach to trade policy of Donald Trump. Disappointingly, during the first year of his presidency, Biden has instead largely embraced the failed Trump policy of unilateralism and protectionism in trade. He and his administration have done so politely, without Trump’s bluster and bombast. Yet, the results have been mostly the same: a turn toward more trade protection and managed trade, toward a proposed industrial policy that would add more restrictions on trade, and toward a destructive unilateralism that threatens to continue undermining the multilateral trading system overseen by the World Trade Organization. If Biden continues to pursue this misguided trade policy, American recovery and prosperity are at risk. There is still time—at least three years—for him to end this reign of polite protectionism by framing and pursuing a new trade policy that will benefit all Americans: a policy that will achieve more trade liberalization, stop managed trade, halt trade‐​restrictive industrial policy, renew trade multilateralism, and give restored and unflinching support to the international rule of law in trade.
Topic:
Tariffs, Trade, Donald Trump, Protectionism, and Joe Biden
Political Geography:
China, Asia, North America, and United States of America

9. Trade Liberalization, Collective Bargaining and Workers: Wages and Working Conditions

Author:
Bastien Alvarez, Gianluca Orefice, and Farid Toubal
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Using large scale data on Eastern European workers, we show significant and sizable deteriorations of their wages and working conditions in regions that faced large tariff liberalization and strong erosion of collective bargaining over the process of accession to the European Union. Import tariffs liberalization reduces workers' wages. The deterioration of working conditions is mostly driven by increased labor demand due to the improvement of Eastern countries' international market access. The erosion of collective bargaining worsens wages and working conditions.
Topic:
Labor Issues, Tariffs, Collective Bargaining, and Wages
Political Geography:
Europe and Eastern Europe

10. Trade Liberalization along the Firm Size Distribution: The Case of the EU-South Korea FTA

Author:
Sonali Chowdhry and Gabriel Felbermayr
Publication Date:
02-2021
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In 2011, the EU-South Korea Free Trade Agreement (EUKFTA) entered into force. With its focus on non-tariff barriers (NTBs), it is a leading example of a deep new generation agreement. Using detailed French customs data for the period 2000 to 2016, we investigate how exporters of different size have gained from the agreement. Applying a diff-in-diff strategy that makes use of the rich dimensionality of the data, we find that firms with larger pre-FTA sizes benefit more from the FTA than firms at the lower end of the size distribution, both at the extensive (product) and the intensive margins of trade. The latter finding is in surprising contrast to leading theories of firm-level behavior. Moreover, we find that our main result is driven by NTB reductions rather than tariff cuts. In shedding light on the distributional effects of trade agreements within exporters, our findings highlight the need for effective SME-chapters in FTAs.
Topic:
Economics, International Political Economy, Treaties and Agreements, Tariffs, and Trade
Political Geography:
Europe, South Korea, and European Union