International rates
Labor Market Shocks and the Demand for Trade Protection: Evidence from Online Surveys
Rafael Di Tella & Dani Rodrik
NBER Working Paper, March 2019
Abstract:
We study preferences for government action in response to layoffs resulting from different types of labor-market shocks. We consider the following shocks: technological change, a demand shift, bad management, and three kinds of international outsourcing. Respondents are given a choice among no government action, compensatory transfers, and trade protection. In response to these shocks, support for government intervention generally rises sharply and is heavily biased towards trade protection. Demand for import protection increases significantly in all cases, except for the "bad management" shock. Trade shocks generate more demand for protectionism, and among trade shocks, outsourcing to a developing country elicits greater demand for protectionism than outsourcing to a developed country. The "bad management" shock is the only scenario that induces a desired increase in compensatory transfers. Effects appear to be heterogeneous across subgroups with different political preferences and education. Trump supporters are more protectionist than Clinton supporters, but preferences seem easy to manipulate: Clinton supporters primed with trade shocks are as protectionist as baseline Trump voters. Highlighting labor abuses in the exporting country increases the demand for trade protection by Clinton supporters but not Trump supporters.
The Production Relocation and Price Effects of U.S. Trade Policy: The Case of Washing Machines
Aaron Flaaen, Ali Hortaçsu & Felix Tintelnot
NBER Working Paper, April 2019
Abstract:
We analyze several rounds of U.S. import restrictions against washing machines. Using retail price data, we estimate the price effect of these import restrictions by comparing the price changes of washers with those of other appliances. We find that in response to the 2018 tariffs on nearly all source countries, the price of washers rose by nearly 12 percent; the price of dryers - a complementary good not subject to tariffs - increased by an equivalent amount. Factoring in the effect of dryers and price increases by domestic brands, our estimates for the 2018 tariffs on washers imply a tariff elasticity of consumer prices of between 110 and 230 percent. The 2016 antidumping duties against China - which accounted for the overwhelming majority of U.S. imports - led to minor price movements due to subsequent production relocation to other export platform countries. Perhaps surprisingly, the 2012 antidumping duties against Korea led to relocation of production to China, actually resulting in lower washer prices in the United States. We find that our measure of the tariff elasticity of consumer prices may differ in sign and magnitude from conventional pass-through estimates which are based on a regression of country-specific import price changes on country-specific tariff changes. Production relocation effects, price changes by domestic brands, and price changes of complementary goods all contribute to the differences between these measures.
Crisis as Opportunity: Nixon's Announcement to Close the Gold Window
Christoffer Zoeller & Nina Bandelj
Socius: Sociological Research for a Dynamic World, April 2019
Abstract:
The authors reexamine the announcement of the August 1971 decision to suspend convertibility of U.S. dollars to gold, or closing of the gold window, which ended the Bretton Woods system and ushered in the neoliberal era. Existing accounts identify critical pressure on the U.S. gold supply after May 1971 international currency disruptions as a tipping point for this policy. In contrast, using new archival evidence, the authors reveal that Nixon strategically framed May 1971 events as an urgent economic "crisis," deploying "crisis" as a justification for closing the gold window. Nixon seized crisis opportunism to announce a policy decided upon significantly before May 1971, to privilege U.S. interests in the international arena and to assuage his reelection concerns, before potential backlash by the International Monetary Fund members and the U.S. Congress. The authors draw lessons from this historical case for contemporary events and for examining economic crises as objects of inquiry in their own right.
Long-Term Economic Distress, Cultural Backlash, and Support for Brexit
Miguel Carreras, Yasemin Irepoglu Carreras & Shaun Bowler
Comparative Political Studies, forthcoming
Abstract:
Economic and cultural factors are often presented as alternative explanations of Brexit. Most studies have failed to recognize the interplay between contextual economic factors and individual attitudes such as nativism and Euroscepticism. We argue that both economic and cultural factors matter to explain the outcome of the referendum. Economic factors are critical because they shape cultural attitudes. British citizens who live in economically depressed and declining districts are more likely to develop anti-immigrant and Eurosceptic views. These cultural grievances, in turn, explain support for Brexit. Using both aggregate economic and electoral data at the local level (380 districts) and data from the 7th wave of the British Election Study 2014-2017 panel, we find strong support for our argument that cultural grievances mediate the effect of long-term economic decline on support for Brexit. Our results have important policy implications, and suggest targeted economic policies are necessary to protect the "losers of globalization."
The Impact of the 2018 Trade War on U.S. Prices and Welfare
Mary Amiti, Stephen Redding & David Weinstein
NBER Working Paper, March 2019
Abstract:
This paper explores the impacts of the Trump administration's trade policy on prices and welfare. Over the course of 2018, the U.S. experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and complete passthrough of the tariffs into domestic prices of imported goods. Overall, using standard economic methods, we find that the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month by the end of 2018. We also see similar patterns for foreign countries who have retaliated against the U.S., which indicates that the trade war also reduced real income for other countries.
The Return to Protectionism
Pablo Fajgelbaum et al.
NBER Working Paper, March 2019
Abstract:
We analyze the short-run impacts of the 2018 trade war on the U.S. economy. We estimate import demand and export supply elasticities using changes in U.S. and retaliatory tariffs over time. Imports from targeted countries decline 31.5% within products, while targeted U.S. exports fall 11.0%. We find complete pass-through of U.S. tariffs to variety-level import prices. We compute the aggregate and regional impacts in a general equilibrium framework that matches these elasticities. Annual consumer and producer losses from higher costs of imports are $68.8 billion (0.37% of GDP). After accounting for higher tariff revenue and gains to domestic producers from higher prices, the aggregate welfare effect is a $7.8 billion loss (0.04% of GDP). U.S. tariffs favored sectors located in politically competitive counties, but retaliatory tariffs offset the benefits to these counties. We compute that tradeable-sector workers in heavily Republican counties are the most negatively affected by the trade war.
The Impact of Chinese Trade on U.S. Employment: The Good, The Bad, and The Apocryphal
Nicholas Bloom et al.
Stanford Working Paper, March 2019
Abstract:
Using Census micro data we find that the impact of Chinese import competition on US manufacturing had a striking regional variation. In high-human capital areas (for example, much of the West Coast or New England) most manufacturing job losses came from establishments industry switching to services. The establishment remained open but changed to research, design, management or wholesale. In the low human-capital areas (for example, much of the South and mid-West) manufacturing job-losses came from plant closure without much offsetting gain in service employment. Offshoring appears to drive these manufacturing job losses - the Chinese trade impact arose primarily in large importing firms that were simultaneously expanding service sector employment. Hence, our data suggest Chinese trade redistributed jobs from manufacturing in lower income areas to services in higher income areas. Finally, the impact of Chinese imports appear to have disappeared after 2007 - we find strong employment impacts from 2000 to 2007, but nothing since from 2008 to 2015.
The Effects of Farm Subsidies on Farm Exports in the United States
Lan Anh Tong, Cong Pham & Mehmet Ulubaşoğlu American
Journal of Agricultural Economics, forthcoming
Abstract:
We estimate the elasticity of U.S. farm exports to U.S. farm subsidies using a gravity model of state-level farm exports to 100 major trading destinations for the period 1999 to 2011. Our identification strategy exploits the within-state variation that is free of endogeneity bias in the levels and trends of farm subsidies and farm exports. We find that a 1% decrease in farm subsidies would reduce U.S. farm exports by 0.40% per annum. This equivalently means that the complete abolishment of the farm subsidy program would reduce U.S. farm exports by approximately $15.3 billion per year. Importantly, we document robust evidence that amber box subsidy programs such as counter-cyclical payments and marketing loan gains have the strongest effect on farm exports, while green box subsidy payments, such as direct payments have negligible effects. Finally, subsidy payments affect exports only in agricultural commodities, not in livestock. Our subsidy elasticity estimates are statistically significant, stable, and economically meaningful, and are vitally needed by U.S. and global policymakers in the face of critical domestic and international developments.
Might Global Uncertainty Promote International Trade?
Isaac Baley, Laura Veldkamp & Michael Waugh
NBER Working Paper, February 2019
Abstract:
Common wisdom dictates that uncertainty impedes trade - we show that uncertainty can fuel more trade in a simple general equilibrium trade model with information frictions. In equilibrium, increases in uncertainty increase both the mean and the variance in returns to exporting implying that trade can increase or decrease with uncertainty depending on preferences. Under general conditions on preferences, we characterize the importance of these forces using a sufficient statistics approach. Higher uncertainty leads to increases in trade because agents receive improved terms of trade, particularly in states of nature where consumption is most valuable. Trade creates value, in part, by offering a mechanism to share risk and risk sharing is most effective when both parties are uninformed.
Trade Shocks and the Shifting Landscape of U.S. Manufacturing
Katherine Eriksson et al.
NBER Working Paper, March 2019
Abstract:
Using data over more than a century, we show that shifts in the location of manufacturing industries are a domestic reflection of what the international trade literature refers to as the product cycle in a cross-country context, with industries spawning in high-wage areas with larger pools of educated workers and moving to lower-wage areas with less education as they age or become "standardized." We exploit the China shock industries as a set of industries that were in the late-stage product cycle by 1990 and show how the activity in those industries shifted from high-innovation areas to low-education areas over the 20th century. The analysis also suggests that the resilience of local labor markets to manufacturing shocks depends on local industries' phase in the product cycle, on local education levels, and on local manufacturing wages. The risk of unemployment and detachment from the labor force rises most when a shock hits in areas where an industry already has begun phasing out, wages are high, or education levels are low. The results are consistent with the belief that there are long-term, secular trends in U.S. industrial structure driving the movement of industries, which shocks may mitigate or accelerate.
Tariff Evasion and Trade Policies
Timm Betz
International Studies Quarterly, forthcoming
Abstract:
Governments use tariffs to manage the politics of international economic integration. To navigate competing demands on trade policy, governments can target tariff rates to individual products. But existing theories miss an important aspect of tariffs: they also need to be enforced at border crossings, which for some governments creates substantial challenges. Faced with high tariffs, firms can misclassify their products into categories with lower tariff rates. Pointing to the potential for such tariff evasion, I discuss the difficulties for governments in targeting tariffs for political gain, and I derive implications for trade politics. Constraints on the ability of governments to enforce tariffs, in the form of low bureaucratic capacity, emerge as an institutional determinant of trade policy, discouraging the use of product-specific tariff rates. Disaggregated tariff data provide empirical evidence for this argument. The article identifies an institutional constraint on trade politics, contributes to growing literatures on firm heterogeneity and on illicit cross-border economic activity, and speaks to debates on trade policy and government revenue.