On terms of trade, offshoring ties, and the enforcement of trade agreements

Subhayu Bandyopadhyay, Arnab K. Basu, Nancy H. Chau and Devashish Mitra

Journal of Economic Behavior & Organization, 2025, vol. 238, issue C

Abstract: This paper unpacks the role of offshoring in the enforcement of trade agreements. In a two-country model of task offshoring, we show that by depressing demand and thus demand for embodied labor, own-tariff effects on factor content weighted terms of trade are: (i) negative in upstream countries, backfiring on upstream workers, and (ii) positive in downstream countries which render imported labor tasks even cheaper. This progression in own-tariff effects on terms of trade along the supply chain presents a novel challenge to the effectiveness of dispute settlement rules designed to nullify unwarranted terms of trade gains. The pros and cons of deep trade integration as a remedy, involving well-enforced labor standards both upstream and downstream as an integral part of trade agreements, are highlighted.

Keywords: Offshoring; Dispute Settlement Reciprocity; Labor Standards (search for similar items in EconPapers)
JEL-codes: F11 F13 F16 F66 O19 O24 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:238:y:2025:i:c:s0167268125003348

DOI: 10.1016/j.jebo.2025.107215

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