The largest total impact is in Scenario 5; this is not surprising considering our estimate of a very
large change in NTB levels of protection from “past” to “present.” We estimate that NTB liberalization
increased US exports to the 17 partners by $84 billion in 2004 and US imports from these same partners
by $132 billion. The impact of Scenario 3, reverting to 1980 transportation costs, is the smallest, with
only a $9 billion impact on US exports and a $19 billion impact on imports. For Scenario 2, a calculation
that analyzes the impact of traditional policy liberalization (i.e., tariff cuts), the impact is large, $115
billion for US exports and $59 billion for US imports. The four preferential trade agreements we consider
(in Scenario 4) are estimated to increase US two-way trade with the 17 partners by about $50 billion
a year.
To compare the impacts calculated under Scenarios 1 through 6, we independently determine the
amount of US trade growth from 1980 to 2004 that can be attributed to GDP growth and exchange
rate changes. To do these calculations we need income elasticities of US trade, GDP growth estimates,
and estimates of real effective exchange rate changes for the United States. Table 5 also shows various
estimates of income elasticities of US trade. For our calculations we use long-run relative price estimates
from Hooper, Johnson, and Marquez (2000)—specifically, a 0.80 income elasticity for US exports and a
1.80 income elasticity for US imports.9 We calculate a weighted average of nominal GDP growth from
1980 to 2004 for the 18 countries we consider.10 We do not differentiate between US growth and partner
growth. The weighted average GDP growth rate, in nominal terms, is 312 percent for these countries. We
also calculate the US real effective exchange rate from 1980 to the present. Over the period 1980 to 2004,
the US dollar appreciated by roughly 13 percent.
In table 7 we estimate the role of GDP growth and exchange rate changes in US trade growth. To
calculate the impact of GDP growth, we extrapolate from 1980 levels of US trade using the GDP growth
of 312 percent and the relevant income elasticity of US trade (0.80 for exports and 1.80 for imports). Our
estimates suggest that nominal GDP growth from 1980 to 2004 boosted US exports with the 17 partners
by $413 billion (in nominal value) and imports from the 17 partners by $970 billion (again in nominal
value). To determine the impact of exchange rate changes, we carry out the following calculation: divide
the change in index values for the US real effective exchange rate from 1980 to 2004 (10.88) by the
average of 1980 and 2004 index values (86.88); then multiply by the relevant price elasticity (—1.17 for
exports and —1.30 for imports) and the relevant one-way US 1992 trade flow (exports or imports) with
the 17 partners (1992 was chosen as a mid-point value). We estimate that exchange rate changes led to a
$53 billion decline in US exports to the 17 partners and a $77 billion increase in US imports from the
17 partners.
9. A larger income elasticity for US imports than US exports is a finding that can be traced to Houthakker and Magee
(1969).
10. Weighted by 1990 GDP.