In markets with zero tariffs but with NTMs with large AVEs, we find that exchange rate passthrough drops dramatically from around 90 percent to 65 percent. These results are robust to a battery of sensitivity checks. In particular, they still hold when controlling for all changes in firm-level costs which might be correlated with exchange rate movements through the inclusion of firm _×_ product _×_ year fixed effects.

What could account for this differential effect of tariffs and NTMs? A plausible conjecture is that if NTMs generate (fixed) compliance costs for _all_ producers, they induce the exit of the smallest ones, raising the market share of all remaining ones, including foreign exporters. In that case, the market power of foreign exporters is enhanced by NTMs. We provide a number of complementary results which are in line with this interpretation. In particular, we perform exercises in the spirit of Fernandes _et al._ (2015) and Fontagn ́e _et al._ (2015) and regress measures of the intensive and extensive margins of trade on NTMs and tariffs at the firm and product levels. We show that higher NTMs in a given market are associated with fewer exporters and more concentrated sales, and, if anything, they have a slightly positive effect on import shares. Tariffs on the other hand are mostly correlated with measures of export performance at the intensive margin.

These results have important policy implications. Indeed, with tariffs on many manufactured products down to low levels, non-tariff measures have taken an increasing importance in regional trade negotiations, whether “mega-regionals” (e.g. TPP or TTIP) or existing ones such as ASEAN, which have tried to prevent them from replacing tariffs as trade barriers. Current policy approaches consist essentially in quantifying their trade effects through ad-valorem equivalents, feeding them into computable general equilibrium models, and hoping to cut them down through inter-governmental negotiations. However, little progress has been achieved so far. While political-economy factors may well have contributed to the lack of progress, this paper argues that trade-based approaches may also be going down the wrong alley. Our results suggest that NTMs should be viewed as a competition-policy issue as much as a trade one. They are not mere surrogates to tariffs, contrary to what a large part of the literature typically assumes, and they may affect market structure in terms of large vs. small firms more than home vs. foreign.<sup>7</sup> Considering them through this perspective would help shift the policy perspective away from doomed trade negotiations to more constructive approaches emphasizing cooperation between regulatory and antitrust agencies (within and between countries) in the design of regulations.

Our results also suggest that trade policy is an important element to consider when trying to understand the transmission of shocks across countries through prices. In the last section of the paper, we indeed show that our results also hold at the product- and country levels, i.e. that tariffs and NTMs affect aggregate pass-through. By impacting overall competition, market structure and markups, trade policy is also likely to have important effects on aggregate welfare (Edmond _et al._ , 2018).

Our work relates to various strands of the literature. Our paper is close to a number of papers that examine the role of trade policy and trade reforms on market power and pricing behavior. For instance, looking at the U.S. steel industry and using plant-level census data, Blonigen _et al._

> 7See e.g. Feenstra (1984), Leamer (1990), Anderson and Neary (1994), Kee _et al._ (2009), Carrere and de Melo (2011).

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