Terrie Walmsley and Peter Minor presented “Supply Chains and Tariff Rates: The Impact of Reversing NAFTA” at the USITC on Thursday, February 23.
Since the North-American Free Trade Agreement (NAFTA) entered into force in 1994, production within the three NAFTA countries has become more specialized as foreign direct investment and trade have been allowed to thrive and firms have taken advantage of economies of scale and lower wages in Mexico. Extensive regional supply chains for producing motor vehicles, chemicals, wearing apparel, among other commodities have emerged. Using a global trade model tailored to include supply chains, we examine the impact of the United States (US) extricating itself from the NAFTA. US tariffs on imports of goods from Canada and Mexico, currently covered under the NAFTA, are assumed to rise to US most favored nation (MFN) rates, compelling Canada and Mexico to reciprocate under World Trade Organisation (WTO) rules. Overall, the results show that the US’s reversal of NAFTA leads to a decline in real GDP, trade and investment in the US, Canada and Mexico, with most of the losses resulting from Canada and Mexico’s reciprocation. The losses in low skilled employment are most significant, with employment declining by 256,000, 125,000, and 951,000 in the US, Canada and Mexico respectively. Production and specialization of production across the NAFTA region declines, particularly in those sectors with the highest levels of vertical specialization across NAFTA. The motor vehicles and services sectors in all three NAFTA countries decline, along with production of US meat, food, and textiles; Canadian chemicals and metals; and Mexican textiles, wearing apparel, electronics and machinery.
Latest version of paper, posted March 2017
ImpactECON announces several new videos examining the Global Supply Chain database and modeling framework.
In the series of videos, a simple trade liberalization shock is implemented on automobiles exported from Japan to Germany using both the GTAP model and the ImpactECON global supply chain model and the results compared. The analysis shows some surprising differences between the two models, and in particular the impact of the trade liberalization on Germany’s domestic production of motor vehicles.
For more information on the ImpactECON global supply chain package, please visit the ImpactECON store.
ImpactECON announces its new Global Supply Chain database and model, along with new labor quantities and updates to the MyGTAP modelling framework. The new products can be used with the GTAP 9a Data Base and can be purchased through the ImpactECON store. Continue reading
ImpactECON Director, Dr. Walmsley presented a paper outlining a new willingness to pay method at the 19th Annual Conference on Global Economic Analysis hosted by the World Bank. The new method was incorporated into a global supply chain model and contrasted with the traditional iceberg method used for examining non-tariff measures. The new willingness to pay method results in larger gains to trade and increased prices through an increase in demand, while the iceberg effect lowers prices through a productivity gain. The new willingness to pay method is documented in working paper #04 of the ImpactECON working paper series.
ImpactECON Director, Dr. Walmsley, presented at the Third High-Level Meeting on Country-Led Knowledge Sharing, held at the World Bank, March 30-31 2016, Washington, DC.
For more information on the event.
ImpactECON, with Copenhagen Economics, was awarded a European Parliament framework contract, for: “Impact Assessment and European Added Value: Development and International Trade Economics.” Award number: EPRS/IMPT/SER/14/013.
ImpactECON introduces new working paper series focused on adapting, testing and transitioning academic work for practical, real world use. The end goal is to improve CGE modeling with emphasis on policy and investment analysis through improvements to data and modeling constructs. Working papers on the MyGTAP model, capital-labor substitution, modeling willingness to pay and the GTAP data base can be found under resources.
Analysis for New Zealand’s Ministry of Foreign Affairs and Trade (MFAT) examines benefits of Trans-Pacific Partnership program for New Zealand and partner economies. The analysis was done in partnership with New Zealand researchers Anna Strutt, University of Waikato, and Allen Rae, Massey University.
Research on potential scenarios for growth in Vietnam used in a Government-World Bank joint report on future growth in Vietnam. The “Vietnam 2035” report, released in Hanoi on February 16, 2016, recommended that Vietnam build a more competitive private sector, support smart urbanization, promote innovation, and take advantage of increasing trade opportunities to enact broad structural reforms. Research conducted by ImpactECON, using a dynamic global CGE model, examined Vietnam’s growth prospects in light of State-owned enterprise reform and the Trans-Pacific Partnership agreement. Read ImpactECON’s report here:
Vietnam 2035 ImpactECON
World Bank Vietnam 2035 Report Delivered. Photo: Chau Doan–World Bank Group
Susan Stone (OECD) describes ImpactECON as a “first-rate, professional organisation that delivers high-quality analysis in a timely, accessible manner. The work done for the OECD met our requirements and exceeded expectations, providing pivotal input to support a broader modelling effort. I will be recommending ImpactECON to others in need of similar expertise.”