Drusilla K. Brown

Tariffs, the terms of trade, and national product differentiation

Abstract The assumption of national product differentiation is a common feature in many computable general equilibrium models currently used to evaluate trade policy. The results of these models tend to be dominated by changes in the terms of trade, rather than the efficiency effects of the policy concerned. In this paper we use a theoretical n -country general equilibrium trade model to evaluate how national product differentiation relates to the terms-of-trade effects of a tariff. We conclude that monopoly power implicit in national product differentiation is the source of the strong terms-of-trade effects in Armington-type models, and can be exercised with the imposition of a tariff. These results are independent of country size, thus yielding a nonzero optimal tariff even for a small country. Theoretical results are then illustrated using the importdisaggregated version of the Michigan model of world production and trade. We find that strong, tariff-induced terms-of-trade changes emerge over a wide range of import demand elasticities. These results suggest that the assumption of national product differentiation may prejudice the case in favor of maintaining existing levels of protection, and, therefore, may not be appropriate for commercial policy analysis.

Measurement and Modeling of the Economic Effects of Trade and Investment Barriers in Services

In this paper, the authors adapt the latest version of the Michigan Model of World Production and Trade to incorporate cross-border services trade and foreign direct investment (FDI). Firms are taken to be monopolistically competitive. Each firm produces products differentiated by the original R&D that defines the basic product and by location of production. Each firm faces a fixed cost in the country where production occurs, and sets an optimal mark-up for sales from each location. Firms locate production for export or for local consumption depending on the type of barriers faced. Barriers to trade in services take the form of an additional cost of employing variable capital and labor. The paper reports the impact on welfare, trade, factor prices, sectoral output, economies of scale, and activities of multinationals following the introduction of national treatment of multinational firms in all countries. Copyright 2001 by Blackwell Publishing Ltd.

Multilateral, Regional and Bilateral Trade-Policy Options for the United States and Japan

We have used the Michigan Model of World Production and Trade to simulate the economic effects on the United States, Japan, and other major trading countries/regions of the Doha Round of WTO multilateral trade negotiations and a variety of regional/bilateral free trade agreements (FTAs) involving the United States and Japan. We estimate that an assumed reduction of post-Uruguay Round tariffs and other barriers on agricultural and industrial products and services by 33 per cent in the Doha Round would increase world welfare by

Trade and Labor Standards

686.4 billion, with gains of

Computational Analysis of the US FTAs with Central America, Australia and Morocco

164.0 billion for the United States,

Computational Analysis of the Accession of Chile to the NAFTA and Western Hemisphere Integration

132.6 billion for Japan, and significant gains for all other industrialised and developing countries/regions. If there were global free trade with all post-Uruguay Round trade barriers completely removed, world welfare would increase by

Globalization, Wages, and the Quality of Jobs : Five Country Studies

2.1 trillion, with gains of

Tariffs and capacity utilization by monopolistically competitive firms

497.0 billion (5.5 per cent of GNP) for the United States and

Expanding NAFTA: Economic effects of accession of Chile and other major South American nations

401.9 billion (6.2 per cent of GNP) for Japan. Regional agreements such as an APEC FTA, an ASEAN Plus 3 FTA, and a Western Hemisphere FTA would increase global and member country welfare but much less so than the Doha multilateral trade round would. Separate bilateral FTAs involving Japan with Singapore, Mexico, Chile and Korea, and the United States with Chile, Singapore and Korea would have positive, though generally small, welfare effects on the partner countries, but potentially disruptive sectoral employment shifts in some countries. There would be trade diversion and detrimental welfare effects on some non-member countries for both the regional and bilateral FTAs analysed. The welfare gains from multilateral trade liberalisation are therefore considerably greater than the gains from preferential trading arrangements and more uniformly positive for all countries.

Some Estimates of a North American Free Trade Agreement

The purpose of our paper is to explore the different views of the issues of international labor standards and to explore the available options for addressing these issues. We conclude that: (1) there is no convincing case on theoretical or empirical grounds for incorporating labor standards into the WTO and into U.S. trade agreements; (2) the surest way to improve labor standards is for the United States and other industrialized countries to maintain open markets and to encourage the economic growth of their developing country trading partners; and (3) steps should be taken to support the activities of the International Labour Organization (ILO) to provide inducements and technical assistance to help developing countries raise their labor standards.