Working Papers

ABSTRACT: The principle of reciprocity plays a central role in GATT/WTO market access negotiations. Motivated by the widespread belief that China has not abided by the norm of reciprocity since joining the WTO in 2001, and by the large loss of manufacturing jobs experienced by the United States after China’s WTO accession — the “China Shock” — we investigate the link between reciprocity in tariff negotiations and the magnitude of the labor-market adjustments that can be expected to arise under tariff negotiations that conform to reciprocity. In the textbook two-good two-country neoclassical trade model that has helped to illuminate the economic logic of many of GATT’s design features, we observe that a country’s own tariff liberalization can be seen as a sufficient statistic for the labor-market adjustments it can expect from tariff negotiations that satisfy reciprocity. We then demonstrate that this property extends to a number of workhorse quantitative trade models where we can provide closed-form expressions for the mapping between reciprocal tariff cuts and labor market dislocation, and we apply our theoretical results to guide a quantitative evaluation of reciprocity in the context of China’s 2001 accession to the WTO, focusing on how deviations from reciprocity may have impacted the extent of employment dislocation in the United States and globally. Our findings indicate that China did indeed fail to deliver reciprocity, but that in fact the tariff reductions that it implemented after its accession to the WTO exceeded the norm of reciprocity. This deviation from reciprocity increased aggregate real incomes in the United States and in the rest of the world through the channel of terms-of-trade improvements, but it also amplified the magnitude of the China Shock
experienced by the United States and other countries.

ABSTRACT: We construct a theoretical model in which a country’s government procures a vaccine from a firm to protect its citizens against pandemic harm. The firm can accelerate the vaccine’s availability by investing before regulatory approval, but this risks stranding investment if approval fails. The government can encourage such at-risk investment by adding capacity subsidies on top of its procurement price. We analyze the optimal procurement mechanism under asymmetric information about the firm’s cost and study how this mechanism changes when part of the vaccine supply chain is located offshore. In the absence of international cooperation on vaccine supply-chain policies, offshoring leads the government to reduce the subsidy to avoid information rents leaking to foreign firms whose profits it does not internalize. A second distortion arising with offshored vaccine inputs is that the foreign government may restrict exports in a crisis, holding up the capacity subsidy. Calibrations using estimates of the costs and benefits of a Covid-19 vaccine suggest that the identified distortions can be substantial and that international cooperation aimed at reducing them can result in a many-fold improvement in program net benefits.

ABSTRACT: The world appears to be in imminent peril, as countries are not doing enough to keep the Earth’s temperature from rising to catastrophic levels, and various attempts at international cooperation have failed. Why is this problem so intractable? Can we expect an 11th-hour solution? Will some countries, or even all, succumb on the equilibrium path? We address these questions through a formal model that features the possibility of climate catastrophe and emphasizes the role of two critical issues: the international externalities that a country’s policies exert on other countries, and the intertemporal externalities that current generations exert on future generations. We examine the interaction between these two issues and explore the extent to which international agreements can mitigate the problem of climate change in their presence.

ABSTRACT: The design of a trade agreement should reflect its purpose. Does digital trade change the purpose of a trade agreement? To explore this question, I first describe the definitional and classification issues associated with digital trade, and for modeling purposes I adopt a simple taxonomy of the ways in which digital trade can arise and the policies that can be used to restrict such trade. I then review what the theoretical literature on the economics of trade agreements has to say about the purpose of a trade agreement in a pre-digital model world economy, and how this purpose can be seen to be reflected in the broad design features of both GATT and GATS, the WTO agreements that govern international trade in goods and services respectively. Finally, I introduce digital trade into the model world economy and revisit the purpose of a trade agreement. From this perspective I consider whether the rise of digital trade warrants changes in the design of the WTO.

ABSTRACT: In this book I argue that the best hope for creating an effective world trading system for the twenty-first century is to build on the foundations of the world trading system of the twentieth century. I construct this argument in two steps, first, by developing an understanding of why GATT worked and the economic environment it is best suited for, and second, by evaluating according to this understanding whether the changes in the economic environment that have occurred in recent decades imply the need for changes in the design of the GATT/WTO. I argue that the terms-of-trade theory of trade agreements provides a compelling framework for understanding the success of GATT in the twentieth century, and I argue that according to this understanding the logic of GATT’s design features transcend many, though not all, of the current challenges faced by the WTO.