SMU SOE Seminar Series (August 21, 2024): Trade Policies Mix and Match: Theory, Evidence and the EU-Sino Electric Vehicle Disputes

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ABSTRACT

This paper studies the relationship between tariffs and non-tariff measures (NTMs) based on the latest product-level ad valorem equivalent estimates. Reduced-form results show that overall tariffs and NTMs are policy substitutes. The substitutions are larger for high-income importing countries, low-income exporting countries, country pairs with deep trade agreements, and products with consumption externalities.
A terms-of-trade model with welfare-maximizing governments confronting externalities rationalizes and confirms the reduced-form results via structural estimations. The model is further used to shed light on the recent EU-Sino battery electric vehicle (BEV) disputes, whereby the EU imposed NTMs on top of the tariffs on China’s BEVs.

Keywords: Tariffs, Non-Tariff Measures, Ad Valorem Equivalent, Trade Policies, Externalities, Electric
Vehicles, EU-Sino Trade Disputes, Trade Tensions

JEL Codes: F13, F14

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