This site offers industry-specific, partial equilibrium (PE) modeling tools that can be used to simulate the economic impact of changes in trade policies. The models are based on economic theory and can be applied to specific industry data and policy scenarios.

PE models are sets of equations that identify the economic factors that influence the prices and sales of imports and competing domestic products in the industry. They estimate the economic impact of changes in tariff rates, including changes in equilibrium prices, domestic shipments, or imports from their initial values. PE models are often used for prospective analysis of policy changes not yet in force, though they can also be used to analyze the impact of policy changes in the past.

There are many software packages that can be used to run PE model simulations. Since the equations of the models are typically non-linear, they are often run in specialized mathematical software like Mathematica or GAMS. However, this Portal offers downloadable non-linear PE models that run in simple Excel spreadsheets (with a lot of hidden columns) as well as models in Mathematica notebook files. The advantage of the spreadsheet format is that it is easy to run, without expertise in the underlying equations of the model or specialized mathematical software.

The PE simulation models provide preliminary quantification of economic effects. The next steps would be to build on this analysis by relaxing some of the restrictions of the model, improving data inputs, and elaborating the structural equations of the model, though these customizing extensions require modeling expertise.

The technical documentation [PDF] [TXT] describes the solution technique used in the spreadsheet models. 

There many different types of PE models. All of the models are simplified representations of the industries to which they are applied. The models vary in their required data inputs and in the features of the industry that they are able to capture. The Portal currently includes 31 downloadable models. The Non-Technical Guide to the PE Modeling Portal  [PDF] [TXT] provides descriptions of the different models and provides advice for selecting a model.

When selecting among the models offered on this Portal, choose the one that best fits the industry and markets that you would like to analyze, after confirming that the required data inputs are available.

 

TYPES OF MODELS THAT ARE CURRENTLY AVAILABLE IN A SPREADSHEET FORMAT

There are currently 25 models available in spreadsheet format on this Portal. We group the models by the models’ assumptions about market structure and whether they focus on foreign direct investment (FDI) or intellectual property rights.

Group 1: Trade Policy Models with Perfect Competition

  • CES Tariff Model  [XLSX] This is probably the most common model in industry-specific trade policy analysis. There are differentiated products from three different sources of supply and a constant elasticity of substitution (CES) among them. The model can simulate the effects of tariff changes on prices and quantities of imports and domestic shipments in the single national market.
  • CES Tariff Model with Nesting of Subject and Non-Subject Imports  [XLSX] This is a variant of the CES model that allows for a higher elasticity of substitution between the two sources or types of imports. This model is an alternative for simulating the effects of tariff changes on prices and quantities of imports and domestic shipments in the market.
  • CES Tariff Model with Nesting of the Domestic Product and Subject Imports [XLSX] This is a variant of the CES model that allows for a higher elasticity of substitution between the domestic product and subject imports. This model is an alternative for simulating the effects of tariff changes on prices and quantities of imports and domestic shipments in the market.
  • CES Tariff Model with Nesting of the Domestic Product and Non-Subject Imports [XLSX] This is a variant of the CES model that allows for a higher elasticity of substitution between the domestic product and non-subject imports. This model is an alternative for simulating the effects of tariff changes on prices and quantities of imports and domestic shipments in the market.
  • CES Tariff Model without a Domestic Industry [XLSX] This variant includes two foreign sources of supply to the market, subject imports and non-subject imports, but there is no domestic product. This variant can simulate the effects of tariff changes on prices and quantities of the two types of imports in the single market.
  • Tariff Model with Intermediate Imports [XLSX] This variant includes two sources of final goods supply and two sources of intermediate goods supply in a single market. This model can simulate the effects of tariff changes for both intermediate goods and final goods on prices, quantities and volumes of production in the market.
  • Model with a Binding Import Quota  [XLSX] This variant includes three sources of supply to a single domestic market. The model can simulate the effects of a binding quota on prices, quantities, and volumes of production in the market.
  • Tariff Model with Log-Linear Demand [XLSX] This variant includes differentiated products from three different sources of supply and constant price elasticities of demand (rather than CES). The model can simulate the effects of tariff changes on prices and quantities of imports and domestic shipments in the single national market.
  • Tariff Rate Quota Model  [XLSX] This variant of the model includes three sources of supply to a single market. The model can simulate the effects of a tariff rate quota (TRQ) on prices and quantities in the market.
  • Tariff Model with Incomplete Capacity Utilization [XLSX] This variant includes three sources of supply to a single market. Domestic supply and capacity utilization are determined by a capacity constraint, which is an input of the model. The model can simulate the effects of a tariff on prices, quantities, and capacity utilization.
  • Model with Entry of a New Source of Imports Tariff Model with Incomplete Capacity Utilization [XLSX] This variant of the perfect competition tariff model addresses the case when a tariff reduction leads to the entry of a new source of imports into the market. It can simulate the effects of the new entry on the prices and quantities of imports and domestic shipments in the market.

This technical documentation  [PDF]  [TXT] describes the equations for this first group of models. 

 

Group 2: Tariff Models with Imperfect Competition

  • Bertrand Differentiated Products Tariff Model  [XLSX] This variant includes three sources of supply to a single, highly concentrated domestic market. Firms maximize profits in a Bertrand-style competition. They choose their price taking the equilibrium prices of their competitors as given. Demand has a CES form. The model can simulate the effects of a tariff change on prices, quantities, and profits in the market.
  • Cournot Tariff Model with 2 Firms [XLSX] This variant includes two firms serving a highly concentrated domestic market. Firms maximize profits in a Cournot-style competition. They choose the quantity that they will sell taking the equilibrium quantities of their competitors as given. The model can simulate the effects of a tariff change on prices, quantities, and profits in the market.
  • Cournot Tariff Model with 3 Firms [XLSX] This variant includes three firms serving a highly concentrated domestic market. Firms maximize profits in a Cournot-style competition. The model can simulate the effects of a tariff change on prices, quantities, and profits in the market.
  • Monopoly Tariff Model [XLSX] This variant includes a dominant firm with market power and a foreign perfectly competitive supply of fringe firms in a single domestic market. The dominant firm chooses its price to maximize its profits and the fringe firms are price takers. The model can simulate the effects of a tariff change on prices, quantities, and dominant firm profits in the market.
  • Model with Cross-Border Trade, Fixed Costs, Tariffs, and Firm Heterogeneity but No Foreign Affiliate Sales [XLSX] This variant includes monopolistically competitive firms with heterogeneous productivity and scale economies. The model can simulate the effects of changes in tariffs, fixed costs of production, and fixed costs of exporting on the volume of international trade and domestic shipments.

This technical documentation [PDF] [TXT] describes the equations for this second group of models.

 

Group 3: Models with Foreign Direct Investment

  • Model with Foreign Affiliate Sales and Cross-Border Trade [XLSX] This variant includes monopolistically competitive firms with heterogeneous productivity and scale economies. The model can simulate the effects of changes in tariffs, fixed costs of production, and fixed costs of exporting on the volume of cross-border imports and domestic shipments, as well as inbound foreign affiliate sales.
  • Tariff-Jumping FDI Model  [XLSX] This variant of the Bertrand imperfect competition model predicts when exporting firms will switch modes of supply to local affiliate FDI after large tariff increases. The model can simulate the effects of changes in tariffs on mode of supply, prices and quantities in a foreign market.
  • Export Platform FDI Model [XLSX] This variant of the Bertrand imperfect competition model predicts when firms with offshoring will re-shore production after a large tariff increase. The model can simulate the effects of changes in tariffs on mode of supply, prices and quantities in a foreign market.
  • Cross Border Ownership FDI Model [XLSX] This variant of the Bertrand imperfect competition model addresses the case where there is foreign ownership and/or control over a domestic subsidiary firm. The model can simulate the effects of changes in tariffs on prices and quantities in a market with cross-border ownership and control.
  • Model with Offshoring  [XLSX] This variant is a two-country, two-factor model that estimates the impact of changes in wages and costs of offshoring on domestic employment of different labor types.

 

This technical documentation [PDF] [TXT] describes the equations for this second group of models.

 

Group 4: Models That Focus on Intellectual Property Rights

  • Model of the Value of a Monopoly Created by Protecting IPR [XLSX] This variant simulates the profits created by monopolization of a previously competitive market. It can be used to simulate the economic effects on prices and profits of protecting intellectual property rights.
  • Model of Trade and Innovation [XLSX] This variant is a static, partial equilibrium version of models of trade and incentives to innovate. It can be used to simulate the increase in innovation that could result from protecting intellectual property rights in an additional export market.

This technical documentation” [PDF] [TXT] describes the equations for this fourth group of models.

Group 5: Trade Models with Multiple Countries

  •  CES Tariff Model with Two Countries  [XLSX] This variant includes two source countries and two detination markets, domestic and foreign. This model can simulate the effects of tariff changes on prices and volumes of imports and domestic production in both of the markets.
  • Many Country Trade Model with Country-Specific Supply Shocks [XLSX] This variant includes up to give source countries and national destination markets. This model can simulate the effects of country-specific supply shocks on prices and volumes of net imports and consumption in all of the countries.

This technical documentation [PDF] [TXT]  describes the equations for this fifth group of models.

 

MODELS THAT ARE CURRENTLY AVAILABLE AS MATHEMATICA NOTEBOOK FILES

There are currently six models available as Mathematica notebook files. Models in this format require specialized mathematical software, but they are easier to create, modify, and expand.

  • Extended Model with New Entry  of Subject Imports [NB] [PDF] [TXT] This variant includes three initial sources of supply, with no initial volumes of imports from suppliers subject to tariff changes. The model uses a reference group to calibrate the marginal costs of subject imports entering the market. The model can simulate the effects of a tariff change on prices and quantities for imports and domestic producers in cases where there are no initial volumes of imports from suppliers subject to the tariff changes.
  • CES Tariff Model with Three Countries or Regions [NB] [PDF] [TXT] This variant includes three source regions and three destination regions. They can be three countries or two countries with one of the countries split into two sub-national regions. This model simulates the effects on prices and volumes of imports and domestic production in all of the regions.
  • FDI, Trade, and Pricing Model [NB] [PDF] [TXT] This variant is a Bertrand differentiated products model with several alternative forms of foreign direct investment, including foreign acquisitions with and without technology transfer and greenfield investment. The model simulates changes in prices, trades, and industry employment associated with the different types of foreign direct investment.
  • Time to Build Model [NB] [PDF] [TXT] This dynamic PE model of tariff changes applies to industries where products take time to build or grow. Producers can store goods to future periods to avoid the economic effects of a tariff shock. The model simulates changes in prices, quantities, trade flows, and storage on domestic and foreign sources of supply.  
  • Stockpiling Model [NB] [PDF] [TXT] The stockpiling model is a dynamic PE model of tariff changes that quantifies that reaction of subject imports to an anticipated future tariff increase. The model simulates changes in prices, quantities, trade flows, and stockpiling in the market. 
  • Tariff Model with Translog Demand [NB] [PDF] [TXT] This PE model of trade policy changes uses translog preferences, a departure from CES functional forms, to quantify the economic impacts of a tariff change in a three-source market. The use of translog preferences allows for greater variety in substitution patterns across pairs of goods. The model simulates changes in prices, quantities, and trade values in the market.

 

DATA SETS OF ELASTICITY VALUES

Ahmad and Riker Elasticity of Substitution Dataset for U.S. Manufacturing Industries [XLSX] The substitution elasticities found in this dataset are estimated using the structural relationship between the price-cost markup and the elasticity of substitution in industries operating under monopolistic competition. Elasticities of substitution are reported at the three-digit, four-digit, and six-digit NAICS level. 

 

WORKING PAPERS THAT USE PORTAL MODELS

USITC staff have completed a series of research papers that develop the methodology for the Portal models and in some cases apply them to specific industries.  Recent examples include:

Modeling Tariff Policy in Concentrated Markets with Cross Border Ownership (January 2020)  [PDF]  [TXT]

 

Import Entry Following a Tariff Reduction: Estimating an Upper Bound (January 2020) [PDF]  [TXT] Modeling FDI: Tariff Jumping and Export Platforms (October 2019)  [PDF] [TXT]

FDI, Price Setting, and Tariff Changes in a Logit Model (October 2019) [PDF]  [TXT]

 

Conducting Profitability Analysis in Partial Equilibrium Models with Monopolistic Competition (July 2019) [PDF] [TXT]

Translog Partial Equilibrium Model of Trade Policy Changes (July 2019) [PDF] [TXT]

 Unanticipated Tariff Changes with Time-to-Build Products (June 2019) [PDF] [TXT]

A Method for Estimating the Elasticity of Substitution and Import Sensitivity by Industry (May 2019) [PDF] [TXT]

Import Stockpiling and Anticipated Tariff Changes (May 2019) [PDF] [TXT]

FDI, Trade, and Pricing in a Bertrand Differentiated Products Model (April 2019) [PDF] [TXT]

An Industry-Specific Model with New Entry (February 2019) [PDF] [TXT]

Modeling the Financial Impact of Tariffs in Concentrated Product Markets (October 2018) [PDF] [TXT] 

Additional earlier staff research is available at www.usitc.gov/research_and_analysis/staff_products.htm.

 

IMPORTANT DISCLAIMERS

The models posted on this Portal are the result of ongoing professional research of USITC staff and are solely meant to represent the opinions and professional research of individual staff economists. The models are not meant to represent in any way the view of the U.S. International Trade Commission or any of its individual Commissioners.

This Portal contains generic versions of the models with fictional, illustrative data. The models do not include the data or other customizations included in Commission reports. Predictions based on these models will depend on the specific data and parameter values that are supplied by the user, and so these predictions are solely the responsibility of the user of the modeling tools. 

 

USER FEEDBACK

If you find these modeling tools useful or have comments on the models currently posted or suggestions for models to add to the site, please let us know by emailing pemodeling@usitc.gov.

 

UPDATES

The content on this site is periodically updated with additional models and documentation. Posted content is updated with improved versions, and each of the files is dated on the main page to indicate the version.

 

CONTRIBUTORS

Project leaders: David Riker and Samantha Schreiber

Major contributors: Saad Ahmad, Erika Bethmann, David Coffin, Chris Montgomery, Steven Seifert, Heather Wickramarachi

Thanks to the OCIO for assistance with webposting.

 

SUGGESTED CITATION

The following is a suggested citation for the models and documentation in the PE Modeling Portal:

Riker, David, and Samantha Schreiber. Trade Policy PE Modeling Portal. U.S. International Trade Commission. https://www.usitc.gov/data/pe_modeling/index.htm (accessed March 15, 2020).