## Trade Policy Implications of a Changing World: Tariffs and Import Market Power

_IMF Working Papers, January 13, 2023_

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## Bibliographic details
- Authors: Adam Jakubik, Alexander Keck, Roberta Piermartini
- Published: January 13, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400224324.001

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### Summary and research question
- Economic theory suggests countries’ tariff commitments in trade agreements reflect their import market power at the time of negotiations.
- As countries grow, market power in different sectors can change and commitments may no longer reflect current economic conditions.
- Using a newly built dataset of pre-Uruguay Round applied tariffs and the theoretical framework of the terms-of-trade motive for trade agreements, the paper estimates hypothetical tariff commitments under current levels of market power and compares them with actual tariff commitments.

### Methods and data
- Dataset used: newly built dataset of pre-Uruguay Round applied tariffs.
- Theoretical framework: terms-of-trade motive for trade agreements.
- Comparative approach: estimate hypothetical tariff commitments under current import market power and compare to actual tariff commitments.

### Main findings
- Lower tariff commitments that would reflect current economic conditions would amount to a reduction in annual tariff costs of up to $26.4 billion.
- $26.4 billion is equivalent to nearly 10% of global tariff costs.
- Product-level tariff reductions implied by updated commitments would range from 0 to 18.5 percentage points.
- Average reductions are largest for China.
- Substantial heterogeneity exists between countries and sectors.
- Sectors with the largest potential tariff cost reductions:
  - Vehicles (HS 87)
  - Machinery and appliances (HS 84-85)

### Policy implications and recommendations
- The findings support reviving the WTO's negotiation function to update tariff commitments, similar to how the GATT/WTO system previously adjusted commitments through periodic negotiation rounds.
- Updating tariff commitments to reflect current market power could reduce annual global tariff costs substantially and address cross-country and cross-sector heterogeneity in tariff burdens.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2022/11/04/trade-policy-implications-of-a-changing-world-tariffs-and-import-market-power-525076_