Papers & Reports

This article investigates the spillover effects of the US-China trade war on third countries, using Vietnam’s exports to the U.S. as a case study. Analyzing highly detailed U.S. import data from 2017 to 2020, the study finds that although Vietnam’s overall exports rose by 8%, the average effect was statistically insignificant. However, Vietnam’s exports grew significantly in sectors where China had a pre-tariff war comparative advantage, suggesting Vietnam captured displaced Chinese trade. The paper also finds strong links between increased Vietnam-to-U.S. exports and rising China-to-Vietnam exports, as well as greater multinational corporation (MNC) activity, indicating tariff circumvention via supply chain reallocation. MNC activity is more closely associated with the extensive margin, reflecting new trade relationships rather than just expansion of existing ones. This article contributes to understanding how trade protectionism reshapes global value chains and redirects trade through third countries via strategic corporate responses.

This Note reevaluates the Principal Purpose Test, a provision introduced into over 2,300 bilateral tax treaties since 2015 to combat treaty abuse and tax avoidance. The PPT allows countries to deny treaty benefits when it is reasonable to conclude that obtaining those benefits was a principal purpose of a taxpayer’s arrangement. While critics argue the rule is overly vague and grants excessive discretion to tax authorities, this Note contends that such concerns are overstated. It argues, first, that legal standards like the PPT tend to crystallize over time through administrative and judicial interpretation, becoming more predictable. Second, jurisdictional variation in enforcement — with some countries applying the PPT assertively and others, including tax havens, interpreting it narrowly — will moderate its global impact. The Note ultimately defends the PPT as a balanced and pragmatic reform: one that enhances accountability for tax avoidance without fundamentally disrupting existing international tax frameworks. Its true effect, it concludes, lies in the divergent enforcement choices of treaty-partner countries.

This article critically examines the growing trend of weaponizing trade measures, highlighting how the expansion of national security exceptions and the rise of unilateral trade sanctions have eroded the integrity of the multilateral trading system, particularly within and beyond the WTO framework. While recent WTO cases illustrate this problem, many similar instances fall outside formal oversight, amplifying the threat to global trade stability. The article assesses the systemic risks posed by this practice and argues that, without effective safeguards, the fragile international trade order may face further destabilization. To counter this trend, the article proposes seven concrete countermeasures aimed at restoring rule-based discipline and insulating trade from geopolitical manipulation.

This article investigates how multinational corporations’ capital allocation decisions influence the balance between tax planning and innovation coordination across subsidiaries. Using an analytical model, it shows that while both income shifting and capital deployment can enhance tax efficiency, they can undermine joint innovation efforts across borders. Contrary to standard expectations that lower tax rates boost investment, the model predicts that tax cuts on innovative income may actually reduce innovation-related capital investment in the country enacting the cut. Empirical analysis using patent-box regimes and a stacked-cohort design supports this prediction: MNC affiliates engaged in cross-border collaboration reduce innovative activity after a rate cut, particularly in more generous or restrictive regimes. The findings underscore a key policy tension: efforts to curb income shifting through preferential innovation tax regimes may discourage coordinated investment in innovation, revealing a complex tradeoff between limiting base erosion and fostering growth through R&D.

This paper examines the continued viability of the permanent establishment (PE) concept—specifically the criterion of a fixed place of business in the face of structural changes to the global economy driven by digitalisation, remote service delivery, and short-term business activity. It explores how these developments, alongside interpretive challenges with dependent agent PEs, strain the traditional PE framework. The paper argues that recent updates in the Multilateral Instrument and the 2017 OECD Model Tax Convention function mainly as anti-avoidance tools rather than comprehensive solutions. These measures provide incremental reform but fall short of fully adapting the PE concept to address remote operations and digital business models, underscoring the need for more substantive modernization of the international tax nexus rules.

This article assesses the long-term effects of President Trump’s April 2025 “Liberation Day” tariffs and finds that while unreciprocated tariffs could modestly benefit U.S. welfare by reducing the trade deficit and offsetting income taxes, reciprocal retaliation would generate significant welfare losses. The authors derive an optimal unilateral tariff of 19%, uniform across all partners and based on the overall trade deficit—not bilateral imbalances—highlighting a major design flaw in the USTR’s approach. If trading partners retaliate optimally, U.S. welfare could fall by up to 3.8%, and global employment could shrink by 1.1%.

This article argues that Canada must adopt a bold and multifaceted strategy to counter the existential economic and geopolitical threat posed by a second Trump administration. Faced with U.S. protectionism, populist economic nationalism, and expansionist instincts, the piece calls for Canada to move beyond traditional retaliatory tariffs and WTO complaints. Instead, it proposes a resilience-centered approach that includes diversifying trade through initiatives like a new North Atlantic Free Trade Area or even unilateral liberalization; strengthening internal commerce and transportation infrastructure; and pursuing military modernization and urban renewal. The article further advocates for using Crown Corporations and unconventional monetary tools to stabilize investment and the Canadian dollar, while reinforcing the social safety net to maintain domestic cohesion in a turbulent global trade environment.

This article reconciles the apparent contradiction between product-level findings of full tariff pass-through and firm-level evidence of price adjustments during the US-China trade war. Using detailed customs data, it reveals that high-priced Chinese exporters reduced their pre-tariff prices in response to U.S. tariffs, while lower-priced firms were more likely to exit the U.S. market altogether. This selective market attrition and pricing behavior results in full pass-through at the product level, even though individual firms respond heterogeneously. The analysis underscores how tariff impacts are shaped by firm-level characteristics, with market exit masking incomplete pass-through among remaining exporters.

This article analyzes the spillover effects of the US-China trade war on Brazil’s labor market and finds that Brazilian regions more exposed to China’s retaliatory tariffs against US exports experienced relative gains in formal employment and wage income, driven by increased exports to China. Conversely, US tariffs on Chinese goods had no measurable effect on Brazilian labor markets. The findings illustrate how bilateral trade conflicts can create asymmetric global labor market responses, benefiting third-party countries through redirected trade flows.