Free trade deals fail to maximize global welfare without coordinating domestic policies
The article explores if trade deals should limit a country's own policies. It looks at models with different kinds of firms in various industries. By breaking down the effects of trade policies into parts that affect consumption, production, and terms of trade, the study shows that more intense trade agreements bring bigger benefits, especially when firms are different from each other. Simple trade pacts might not give all the advantages that deeper agreements can provide. When countries do not coordinate their policies well under basic trade deals, it could lead to more problems as shipping costs decrease, making in-depth trade partnerships even more valuable.