Will U.S. upset the Apple cart?

• Position: World Trade

Two lessons taught to kindergarteners apply to nations involved in trade: treat everyone the same and, if you give, you will receive, at least according to an economic study from Kansas State University, Manhattan--published in the Journal of Political Economy--which looks at how countries in the World Trade Organization cooperate using the principles of nondiscrimination and reciprocity.

Peri da Silva, associate professor of economics--and coauthors from the United Nations Conference on Trade and Development and the University of Geneva--examined the relationship between tariffs, which are the taxes countries charge each other on classes of imports or exports, and market power, a measure of countries' abilities to influence the price of goods on the world stage. Large developed nations like the U.S. have much more market power than smaller or developing nations.

'The concept of the WTO is to make sure that countries are conscious of their effects on others," da Silva says. "It's very simple and well thought out because of the two pillars: the tariff the U.S. applies on Germany is the same for Japan and for Malaysia on the same product, for example, and if a country is opening its markets to your products, you should reciprocate."

Acting according to WTO pillars is complicated by the presence of "tariff water"--the difference between the tariff ceilings to which nations are bound by trade agreements and the tariffs they actually apply. Da Silva and his coauthors confirmed that the presence of tariff water allows countries to engage in noncooperative behavior that harms other nations' economies. Shifting to cooperative tariffs, on the other hand, leads to reductions in tariffs and a better bottom line for all.

This means that the WTO has plenty of work to do to safeguard the fairness of world trade, maintains da Silva. Individual nations also have a role to play, because countries operating in tariff waters and charging higher tariffs may cause other nations to retaliate. Da Silva indicates that the U.S. can cause a lot of damage if it raises tariffs.

"You have to be careful because, if you shift costs to the foreigners by raising tariffs, they can respond. You could return to the terrible situation of the...