Events

Professor Fernando Parro
Professor of Economics
Pennsylvania State University

The principle of reciprocity plays a central role in GATT/WTO market access negotiations. Motivated by the “China Shock” experienced by the United States with the large loss of manufacturing jobs after China’s WTO accession, and by the widespread belief that China has not abided by the norm of reciprocity since joining the WTO in 2001, 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. We do this in a sequence of formal models, beginning from the canonical two-good two-country neoclassical trade model that has helped to illuminate the economic logic of many of GATT’s design features, and culminating in a number of workhorse quantitative trade models. We then apply our theoretical results to guide a quantitative analysis of the extent to which reciprocity was achieved in the context of China’s WTO accession negotiations. We assess 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 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 improvements in their terms of trade, but it also contributed to the magnitude of the China Shock experienced by the United States and other countries that was attributable to tariff changes over the post-China-WTO-accession period.