Global Supply Chains and the Political Economy of Preferential Tariff Liberalization

Abstract
How does the increasing reliance on global supply chains change the political economy of trade? We argue that firms that offshore parts of the production to either subsidiaries or other companies located outside national boundaries become increasingly dependent on imports of intermediates. As a result, we expect that with rising imports of intermediates the support for the liberalization of intermediates increases; however, for finished goods, greater imports should have the opposite effect. We also expect that most support for liberalization should come from companies that engage in vertical foreign investments rather than arm’s length trade, as the former have a much larger stake in the lowering of specific trade barriers. Relying on a newly compiled dataset with highly disaggregated tariff data collected for a sample of 90 tariff schedules drawn up by Australia, Canada, Japan, South Korea and the United States in preferential trade agreements (PTAs) signed between 1996 and 2010, we find support for these expectations. The paper has implications for the literatures on trade politics and PTAs.