Exchange Rate Misalignments and International Trade Policy: Impacts on Tariffs

Abstract

The debate on 'exchange wars and trade wars' is raising the attention of experts on international trade and economics. The main purpose of this paper is to analyse the impacts of exchange rate misalignments on one of the most traditional trade policy instruments - tariffs, as defined by the World Trade Organization (WTO). It is divided into three sections: the first one examines the effects of exchange rate variations on tariffs and its consequences for the multilateral trade system; the second explains the methodology used to determine exchange rate misalignments and also presents its results for Brazil, US and China; and the third summarizes the methodology applied to calculate the impacts of exchange rate misalignments on the level of tariff protection through an exercise of 'misalignment tariffication'.

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