School of Economics

Feature on Yuan Mei, Assistant Professor of Economics
School of Economics, Singapore Management University 

Trade blindspots: the hidden impact of steering wheels on international trade  

A foreign plug may be a barrier to charging your phone, but is it also be a barrier to trade? Assistant Professor of Economics Yuan Mei examines how product variations resulting from different standards impede trade in ways previously unnoticed by trade negotiators. 

Whether a car is a left or right-hand drive is something most people take for granted unless they strike the novelty of driving on the opposite side while travelling. But when Assistant Professor Yuan Mei thinks about steering wheels, or any other transnational product difference for that matter, he sees a potential trade barrier. The international trade expert is passionate about how trade policy affects cross-border trade, and in turn people’s welfare. He also brings a different perspective than most.  

“As tariffs reached historically low levels after decades of trade liberalization, recent trade negotiations naturally emphasize reducing trade costs associated with product standards especially those associated with quality”, says Mei, referring to what trade negotiators call ‘vertical standards.’ But through his research, he believes larger trade gains may be found through unifying standards that affect different product design that cannot be ranked by stringency—or ‘horizontal standards’ in trade speak. 

“International product variations such as differently shaped electrical plugs, battery types and even vehicle steering wheel positions probably affect trade flows more than vertical standards that are about product quality,” suggests Mei. “But academic research has paid little attention to horizontal standards.” Several challenges account for this blind spot, he adds.  

“Isolating the horizontal components of regulations from other confounding factors is not easy. Measuring the impact of changes of standards on the trade flow of relevant goods is also difficult, because manufacturers and importers adjust to many other incentives and signals. So, finding good research data  that can be applied to frontier econometric  models is a challenge.” 

Mei is meeting that challenge through his study of the ubiquitous electrical plug.  

He teamed up with Assistant Professor Jimmy Xu from Peking University to examine how regulations on electric plugs across countries affects the trade flow of the electronic devices those plugs are attached to.  

 “We use various data sources to show that fewer electronic devices are exported to destination countries with incompatible plugs. The magnitude of this trade friction is about a third of the average contemporaneous tariffs imposed on electronic devices,” he shared.  

To date, the research is believed to be the first to empirically analyse the impact of a purely horizontal regulatory barrier in international trade. It also illustrates the potential benefits of harmonising international product standards for newly developing technologies, such as telecommunications standards and data products.  

Pursuing unlikely passions 

Mei’s interest in trade policy was sparked in 2015, when he was PhD student at the University of Chicago. Mei saw the importance of understanding the potential impact of large-scale trade wars—even though few thought it a likely scenario at the time, given the then healthy trade flows and low tariff rates around the world.  

“When I began my PhD thesis, I felt I had to constantly convince people to care about tariffs and trade policy in general”, recalls Mei. “Now I am not asked those questions,” he quips, alluding to the outbreak of protectionist trade policies, either in terms of tariffs or domestic regulations, and what some believe is a trend towards de-globalisation.   

Following his PhD, Mei crossed the border himself in 2018, returning from the US to Singapore where he had already attended school for a time.  

“Having come to Singapore from China at the age of 16, I have a long history with the city and many fond memories. More importantly, when I later visited SMU as a scholar, I was very impressed by the friendly faculty who were supportive of me, and community of trade researchers who were strong and academically oriented”, he says. 

This community enabled him to pivot quickly in his research to a conflict that was both military and trade in nature—Russia’s invasion of Ukraine in early 2022.  

To sanction or not to sanction 

Sanctions are significant geopolitical tools and indeed featured among the most immediate global response to Russia’s invasion, yet the impact of using trade policy as tools of sanctions remain unclear and they can be difficult to strike the most effective balance. To lend some evidence to the sanctions effort, Mei and his co-authors Dr Gustavo de Souza from the Federal Reserve Bank of Chicago, Assistant Professor Haishi Li from the University of Hong Kong and a PhD student Naiyuan Hu from SMU worked to quantify the costs and benefits of tariffs as a tool of sanction.  

One complication their research addressed is that tariff sanctions are a double-edge sword; those who impose sanctions also face economic pain. “We aimed to compute the optimal sanctioning tariffs on Russia, taking into account the negative impact on the sanctioning economies,” Mei explains.  

A key factor in the calculation he says, is how willing the sanctioning countries are to bear the cost of imposing sanctions.  

“We found that when there is less will to suffer the costs of imposing sanctions, the best policy is to impose small tariffs on all kinds of products. If sanctioning countries are willing to pay a bigger price, sanctioning countries should target Russia’s main exports such as mining and energy products,” explains Mei.    

The study also found that retaliatory tariffs imposed by Russia would affect Russia’s welfare more than those imposing the sanctions—in this study the European Union. By measuring and quantifying the costs of trade wars, this project helps decision-makers evaluate their options and actions.  

Mei is proud of the research team’s efforts to quickly provide this analysis, noting that the work not only contributes to academia, but also policy makers: the paper featured on a European policy portal that promotes research-based policy analysis, delivering valuable insights directly to relevant policymakers. 

The interaction of geopolitics and international trade is also the setting for future research that Mei hopes to undertake, where his focus would include smaller states experiencing disruption from the side lines. “Economists now a have a pretty clear understanding of the impacts of trade battles on the United States and China. But far less clear is the impact on other countries along the global value chain, such as Singapore. 

“We can do much more research to contribute to both academia and policymakers. For example, how the polarization of political views affects international trade, and consequently the welfare of Singapore and Asia, is an intriguing research question that has yet been answered,” concludes Mei.