|
on International Trade |
|
Issue of 2026–02–02
six papers chosen by Nicola Daniele Coniglio, Università degli Studi di Bari “Aldo Moro” |
| By: | Martin Richardson (Research School of Economics, The Australian National University, Canberra); Frank Stahler (School of Business and Economics, University of Tubingen, Tubingen, Germany); Halis Murat Yildiz (Department of Economics, Toronto Metropolitan University, Toronto, Canada); |
| Abstract: | We identify a condition in a general equilibrium model of trade with tariff bindings under which a customs union (CU) can design a carbon border adjustment mechanism (CBAM) that induces other countries to adopt the CU's carbon tax. Trade liberalization makes this easier and so would help the CU `export' its climate policies. We then show that, in an inter-industry, perfectly competitive framework with competing exporters, the optimal carbon tax is lower when the CU maximizes CU welfare than if it were to maximize global welfare. Furthermore, the CU optimally raises its tariff threat via CBAM by less than the difference in member and non-member environmental taxes. By contrast, in an intra-industry oligopoly model of trade with profit shifting incentives, we find the opposite result, with a "penalty" tariff threat that exceeds the difference in carbon taxes. |
| Keywords: | Tariff Binding, Carbon Leakage, Climate Change, Carbon Border Adjustment Mechanism, European Union |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:rye:wpaper:wp098 |
| By: | Dakshina De Silva; Inkoo Lee; Soon-Cheul Lee; Maurizio Zanardi |
| Abstract: | We develop a three-country theoretical framework and provide new evidence on the role of third-country tariffs in shaping bilateral trade flows. Our model predicts that tariff preferences can generate trade diversion and that the magnitude of this effect depends on the full tariff schedule faced by competing suppliers. Leveraging highly disaggregated transaction-level data on South Korea’s imports, we show that bilateral applied tariffs significantly depress imports, while higher third-country tariffs divert trade toward the partner country. These effects are only identifiable when exploiting the richness of our data at the product level and vary substantially across preferential and non-preferential regimes and by the number of potential suppliers. Our findings highlight the importance of accounting for third-country tariffs when assessing the trade effects of tariff changes, a point that is particularly salient in the current context of U.S. policy proposals of tariff increases. |
| Keywords: | trade flows, applied tariffs, gravity equation |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:lan:wpaper:427560367 |
| By: | Okonjo-Iweala, Ngozi |
| Abstract: | This paper, based on the Mattei Lecture that the author delivered at the 2025 Africa Growth and Opportunity–Research in Action Conference, argues that Africa can anchor a new model of growth—and bolster global resilience—by shifting from commodity dependence to value-added production and deeper integration into trade and investment networks. Against a backdrop of strained multilateralism and falling foreign direct investment to developing economies, global trade remains more robust than presumed, with goods, services, and South-South flows expanding. Africa’s goods exports are projected to grow rapidly, and digitally delivered services have surged from a low base, underscoring untapped potential. Yet persistent impediments—among the world’s highest trade costs, slow regional integration, and limited value addition—have left Africa underrepresented in global trade. The paper advances a two-track agenda: (i) reforming the global trading system, including World Trade Organization modernization and investment facilitation, to restore predictability and openness; and (ii) accelerating African reforms to implement the African Continental Free Trade Area, reduce intra-African trade frictions, and attract efficiency-seeking foreign direct investment into manufacturing, services, and “industries without smokestacks.” Leveraging Africa’s megatrends—demographic dynamism, rising middle classes, and mineral and arable endowments—and “green comparative advantage, ” the paper highlights opportunities to locate energy-intensive activities where renewable resources are abundant, closing gaps in clean energy investment. Case studies—from industrial parks and automotive exports to fintech and critical mineral value chains—demonstrate feasibility but emphasize the need for scale. A pragmatic, delivery-focused partnership—particularly with Europe, via a modernized “Mattei formula”—is proposed to de-risk investment and prioritize timely, transformative infrastructure, yielding shared gains in growth, jobs, and supply chain diversification. |
| Date: | 2026–01–13 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11295 |
| By: | Michael E. Waugh |
| Abstract: | This short note computes Trade Restrictiveness Index measures for current U.S. trade policy. Building on the ideas of Anderson and Neary (1996, 2005), the Trade Restrictiveness Index is the uniform tariff that leaves the U.S. consumer as well off as under actual policy. As of October 2025, U.S. trade policy is twice as restrictive as headline tariff numbers suggest. The Trade Restrictiveness Index is 23 percent, which stands in contrast to the 11 percent average tariff rate. Trade policy towards Canada and Mexico is two to three times more restrictive than average tariff rates suggest. Sectoral analysis shows that the restrictiveness is concentrated in vehicles, machinery, and electrical equipment. |
| JEL: | F13 F14 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34687 |
| By: | Muhammad Azeem (Department of Economics, Toronto Metropolitan University); Andrey Stoyanov (Faculty of Liberal Arts and Professional Studies, York University); Halis Murat Yildiz (Department of Economics, Toronto Metropolitan University, Toronto, Canada); |
| Abstract: | In this paper, we provide a comprehensive theoretical and empirical analysis of the role of economies of scale on external tariff setting following the formation of free trade agreements (FTAs). We build an oligopoly model of trade with flexible degrees of economies of scale and show that the member countries have an incentive to reduce their external most favoured nation (MFN) tariffs following the FTA formation regardless of the degree of economies of scale. We further show that such effect strengthens as the degree of economies of scale rises. We empirically test these predictions and confirm that post-FTA tariff adjustments are consistent with our theoretical expectations, highlighting the importance of incorporating the economies of scale in the FTA analysis. Next, we develop a three-country dynamic FTA formation model to examine how the degree of economies of scale shapes the welfare implications of FTA formation and countries’ incentives to enter into such agreements. Our findings suggest that the equilibrium path of FTA formation is fundamentally shaped by the degree of economies of scale in production technology: when countries exhibit strong preference for short-term gains, the FTAs are more likely to lead to global free trade with increasing or decreasing economies of scale than with constant return to scale. |
| Keywords: | Economies of Scale, Tariff Complementarity, Tariff Bindings, Free Trade Agreement |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:rye:wpaper:wp100 |
| By: | Marisol Rodríguez Chatruc (Inter-American Development Bank, Montevideo, Uruguay); Ernesto Stein (School of Government and Public Transformation, Tecnológico de Monterrey); Razvan Vlaicu (Inter-American Development Bank, Washington, D.C., United States of America); Zuluaga, Victor (Banco de México, Mexico City, Mexico) |
| Abstract: | International trade increases aggregate welfare but also creates winners and losers, making it politically contentious. Recent research has established that individuals are more sensitive to anti-trade information about the prospect of employment loss than to pro-trade information about lower prices or greater variety. In this paper, we study how individual attitudes and beliefs change in response to information about employment losses (in import-competing sectors), gains (in export-oriented sectors), and the possibility of compensation for displaced workers. To this end, we conducted a large-scale survey experiment in 18 Latin American countries using nationally representative samples. We find that anti-trade information reduces support for trade even whencompensation is mentioned, while pro-trade messages increase support only when they emphasize job gains. Belief updating about trade’s employment effects seems to be a relevant mechanism. Our findings have important implications on what types of messaging work to increase support for trade: Although compensation is often recommended to build support for trade liberalizations, it can backfire in practice. At the same time, emphasizing employment creation in export sectors offers a more effective strategy to bolster public support for trade policies. |
| Keywords: | International trade, attitudes, employment, survey experiment, Latin America |
| JEL: | F13 D72 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:gnt:wpaper:21 |