The Looming Threat of Tariff Hikes: Entry into Exporting under Trade Agreement Renegotiation

摘要

When the renegotiation of a trade agreement takes place under the threat that tariffs will increase if negotiations fail, firm entry into a trading partner's market declines. Empirically, we find that uncertainty over future market access following the Brexit referendum of June 2016 deterred British firms from introducing products into the European Union. More generally, our findings suggest that trade agreements have dynamic trade-promoting effects—by establishing stable tariff rates for the future, trade agreements reduce one source of risk for firms that would like to expand internationally.