Adjustment in the process of trade liberalization: The U.S. and Mexico

Abstract

Although many of the issues in North-American trade liberalization are reminiscent of those faced earlier by Europeans and by the United States and Canada, there are also some non-trivial differences. Divergences in economic structure are more pronounced. They affect the interplay of various sources of welfare gains and costs and are likely to make inter-industry and vertically integrated intra-industry trade more important Non-tariff barriers play a greater role in the present context and the welfare effects of preferntial elimination of quantitative restraints differ in important respect from those of tariffs. A free trade area, for example, which is clearly trade-diverting under tariff liberalization may be trade-creating under quantitative restrictions.