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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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    Cited by:

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    7. 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.
    8. 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).
    9. Andrew N. Greenland & Mihai Ion & John W. Lopresti & Peter K. Schott, 2020. "Using Equity Market Reactions to Infer Exposure to Trade Liberalization," NBER Working Papers 27510, National Bureau of Economic Research, Inc.
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    11. Andrea Bernini & Olaf J. de Groot, 2024. "The impact of trade on income inequality in Mexico," Economics Series Working Papers 1036, University of Oxford, Department of Economics.
    12. Fernandes, Ana M. & Forero, Alejandro & Maemir, Hibret & Mattoo, Aaditya, 2023. "Are trade preferences a Panacea? The export impact of the African growth and Opportunity Act," World Development, Elsevier, vol. 162(C).
    13. Lee, Maxine J., 2021. "The effect of import competition on educational attainment at the postsecondary level: Evidence from NAFTA," Economics of Education Review, Elsevier, vol. 82(C).
    14. Rodolfo G. Campos & Jacopo Timini, 2022. "Unequal trade, unequal gains: the heterogeneous impact of MERCOSUR," Applied Economics, Taylor & Francis Journals, vol. 54(49), pages 5655-5669, October.
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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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