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Phase Out Tariffs, Phase In Trade?

Author

Listed:
  • James Lake

    (Southern Methodist University)

  • Tibor Besedes

    (Georgia Institute of Technology)

  • Tristan Kohl

    (University of Groningen)

Abstract
An important stylized fact in the empirical Free Trade Agreement (FTA) literature is that member trade flows gradually increase over time following an FTA. Baier & Bergstrand (2007) suggest two explanations: tariff phase-out and delayed pass-through of tariffs into import prices. We examine these hypotheses using 1989-2016 U.S. import growth and product-level data on the tariff phase-out negotiated under NAFTA and the earlier Canada-U.S. FTA. We find evidence supporting a weak form of the tariff phase-out hypothesis. But, we find little evidence supporting a strong form of this hypothesis because the bulk of delayed import growth stems from products granted tariff free access upon NAFTA rather than products with phased-out tariffs. Additionally, we do not find evidence supporting the delayed tariff pass-through hypothesis. Instead, we find evidence for an important role played by NAFTA tariff cuts reducing the impact of frictions that, in turn, allow a spatial expansion of imports across the U.S.

Suggested Citation

  • James Lake & Tibor Besedes & Tristan Kohl, 2019. "Phase Out Tariffs, Phase In Trade?," Departmental Working Papers 1903, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:1903
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    References listed on IDEAS

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    11. Feodora Teti, 2020. "30 Years of Trade Policy: Evidence from 5.7 Billion Tariffs," ifo Working Paper Series 334, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    12. Carter Mix & George Alessandria, 2017. "The Global Trade Slowdown: A Dynamic Approach," 2017 Meeting Papers 907, Society for Economic Dynamics.
    13. George Alessandria & Carter Mix, 2019. "Trade Policy is Real News: A quantitative analysis of past, current, and future changes in U.S. trade barriers," 2019 Meeting Papers 545, Society for Economic Dynamics.
    14. Khan, Shafaat Yar & Khederlarian, Armen, 2021. "How does trade respond to anticipated tariff changes? Evidence from NAFTA," Journal of International Economics, Elsevier, vol. 133(C).
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    More about this item

    Keywords

    Free Trade Agreements; CUSFTA; NAFTA; trade; phase-out; tariffs; extensive margin.;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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