Phase Out Tariffs, Phase In Trade?
AbstractWhat causes US trade with Mexico and Canada to continue growing
faster relative to countries with which the US does not have a Free Trade
Agreement (FTA)? Baier and Bergstrand (2017) suggest that tariff phase-outs and delayed
terms-of-trade effects cause prolonged differential import growth. We
examine how tariff cuts negotiated under the Canada-US Free Trade Agreement
(CUSFTA) and North American Free Trade Agreement (NAFTA) affected US import
growth in 1989-2017 using detailed product-level data on tariff stagings in
the original treaties. Surprisingly, we find that most FTA-induced trade
growth occurs instantly upon enforcement, even for products subject to phase
out tariffs. Moreover, FTAs have a long-lasting effect on trade growth
beyond the phase out period. These effects are not explained by changes in
the terms of trade.