The Biggest Losers (and Winners) from U.S. Trade Liberalization

Many development experts worry that continuing reductions of tariff levels in high-income countries will limit trade flows from developing countries that benefit from preferential trade programs because of “preference erosion. ” Using a panel of U.S. import data between the years of 1997 and 2005, I find that reductions in preference margins will significantly diminish imports of some products, particularly from lower-middle and low income countries; for example, a one percent reduction in the U.S. tariff on a product that is currently imported duty-free from developing countries will decrease imports of that product from lower-middle countries by an average of 2.6 percent. However, many products produced by developing countries fail to qualify for preferential tariffs, thus a gradual reduction in all U.S. tariff rates is expected to have only a modest impact on trade flows from developing countries