Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute

How important are intermediate tariffs in determining trade patterns? Empirical work measuring the impact of tariff liberalization most commonly focuses on the effects of barriers imposed by importers, but exporter trade policy should also matter when exports are produced with imported intermediates. Guided by extensions of the Eaton and Kortum (2002) model, I study the impact of trade liberalizations on U.S. bilateral trade from 1989-2001. I estimate the impact on U.S. bilateral trade flows of both intermediate tariffs imposed by countries exporting to the United States and U.S. tariffs. My empirical estimates suggest that, especially for less developed countries, their own liberalizations have been quantitatively much more important in explaining changes in bilateral trade patterns, on average 4.2 times larger than the impact of US liberalizations. For the entire sample of countries, countries' own liberalizations have been 2.2 times more important. Abrevaya and Mark Wynne for helpful comments, and Allesandro Nicita for help with the data. All remaining errors are my own. The views in this paper are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System.