Tariff Equivalent of Technical Barriers to Trade with Imperfect Substitution and Trade Costs
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The price-wedge method yields a tariff-equivalent estimate of technical barriers to trade (TBT). An extension of this method accounts for imperfect substitution between domestic and imported goods and incorporates recent findings on trade costs. We explore the sensitivity of this revamped tariff-equivalent estimate to its determinants (substitution elasticity, preference for home good, trade cost, and to the reference data chosen). We use the approach to investigate the ongoing U.S.-Japan apple trade dispute and find that removing the Japanese TBT would yield limited export gains to the United States. We then draw policy implications of our findings.