Activity: Talk or presentation › Oral presentation
Description
Workshop presentation
In modern trade environments with offshoring and politically powerful firms, governments have reason to use trade agreements to expand export volumes beyond what would be expected from standard trade agreement models. In such a setting, we characterize the outcome of rules-based trade negotiations according to WTO principles. The outcome yields new predictions that are consistent with empirical evidence concerning cooperative tariffs under the WTO and governments' attempts to deviate from the cooperative\ equilibrium of the WTO. Exporters with greater political power and larger supply elasticities compel greater reductions in cooperative import tariffs through trade negotiations --- reductions so large that losses to domestic firms from import competition outweigh gains to consumers. Unlike the standard model's cooperative equilibrium in which a government can gain only by improving its terms of trade, a government here will seek to improve outcomes for the losing import-competing firms by imposing disguised protection and discouraging foreign export subsidies.