Heterogeneous effects of tariff and nontariff trade-policy barriers in quantitative general equilibrium

Structural quantitative work in international economics typically models trade costs as a log-linear function of exogenous trade-policy variables. We propose a structural approach that allows for a nonparametric relationship and for treating tariff and nontariff trade-policy variables as potentially endogenous. The data reject the assumption of log-linearity of trade costs in both tariff- and nontariffpolicy variables. We assess the effects of a unilateral increase of US tariffs on Chinese imports by 10 percentage points and document that the estimated effects on real bilateral trade-flow changes would be substantially underestimated by standard approaches.