Paying Protection
Rational Voter Responses to the 2018 Trade War: Evidence From the 2018 U.S. House of Representatives Elections
Sang Hoon Kong
Columbia University Working Paper, November 2019
Abstract:
I examine county-level outcomes of the 2018 U.S. House elections to investigate whether voters electorally responded to the economic impacts of the trade war tariffs in 2018. I find causal evidence that votes for the incumbent president's party (Republican) increased in counties that benefited from the domestic tariffs while those votes decreased in counties that were harmed. The median net effect is negative but economically insignificant. In contrast, I do not find comparable effects on the votes for Democratic candidates, which suggests the domestic tariffs largely impacted the turnout among Republican supporters but did not lead to switching of parties. Finally, I do not find any substantive responses to the retaliatory tariffs.
The Geography of Prescription Pharmaceuticals Supplied to the U.S.: Levels, Trends and Implications
Neriman Beste Kaygisiz et al.
NBER Working Paper, December 2019
Abstract:
Prescription pharmaceuticals are frequently used consumer products, whose manufacturing location is commonly held as a trade secret by firms and U.S. regulatory agencies. Here we use previously non-publicly available data to describe levels and trends in the manufacturing locations of the most commonly used prescription pharmaceuticals, off-patent generic drugs, intended to be consumed by Americans. We find that the base ingredients required for the manufacturing of these prescription drugs are overwhelmingly and increasingly manufactured in non-domestic locations, specifically India and China. The manufacturing of finished prescription drugs for the American market is equally split between domestic and foreign locations, but is increasingly foreign as well. The growing American reliance on non-domestic manufacturing of prescription drugs is important for stakeholders to appreciate given current quality and pricing concerns involving these products and their potential susceptibility to interruptions in supply. We discuss implications of these levels and trends for current domestic and international policy discussions.
Does the @realDonaldTrump Really Matter to Financial Markets?
Allyson Benton & Andrew Philips
American Journal of Political Science, forthcoming
Abstract:
Does the @realDonaldTrump really matter to financial markets? Research shows that new information about the likely future policy direction of government affects financial markets. In contrast, we argue that new information can also arise about the likely future government's resolve in following through with its policy goals, affecting financial markets as well. We test our argument using data on U.S. President Donald J. Trump's Mexico‐related policy tweets and the U.S. dollar/Mexican peso exchange rate. We find that Trump's Mexico‐related tweets raised Mexican peso volatility while his policy views were unknown as well as thereafter, as they signaled his resolve in carrying out his Mexico‐related agenda. By helping politicians disseminate policy information to voters, and since voters hold governments accountable for their policy performance, social media allows investors to gather information about the likely policy direction and policy resolve of government, especially those of newcomers whose direction and resolve are unknown.
Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism
Kyle Handley, Fariha Kamal & Ryan Monarch
NBER Working Paper, January 2020
Abstract:
We examine the impacts of the 2018-2019 U.S. import tariff increases on U.S. export growth through the lens of supply chain linkages. Using 2016 confidential firm-trade linked data, we document the implied incidence and scope of new import tariffs. Firms that eventually faced tariff increases on their imports accounted for 84% of all exports and represented 65% of manufacturing employment. For all affected firms, the implied cost is $900 per worker in new duties. To estimate the effect on U.S. export growth, we construct product-level measures of import tariff exposure of U.S. exports from the underlying firm micro data. More exposed products experienced 2 percentage point lower growth relative to products with no exposure. The decline in exports is equivalent to an ad valorem tariff on U.S. exports of almost 2% for the typical product and almost 4% for products with higher than average exposure.
Barriers to Trade: How Border Walls Affect Trade Relations
David Carter & Paul Poast
International Organization, forthcoming
Abstract:
Since trade must cross borders, to what extent do border walls affect trade flows? We argue that border walls can reduce trade flows. Even if the objective is to only stem illicit flows, border walls heighten “border effects” that can also inhibit legal cross-border flows. Using a gravity model of trade that reflects recent developments in both economic theory and econometrics, we find that the creation of a wall is associated with a reduction in legal trade flows between neighboring countries. We provide a battery of evidence that suggests this reduction is not simply a function of worsening bilateral relations. Our findings have implications for understanding how governments have taken measures to assert sovereign control of their borders in an age of increasing economic globalization.
Who's Paying for the US Tariffs? A Longer-Term Perspective
Mary Amiti, Stephen Redding & David Weinstein
NBER Working Paper, January 2020
Abstract:
Using data from 2018, a number of studies have found that recent U.S tariffs have been passed on entirely to U.S. importers and consumers. These results are surprising given that trade theory has long stressed that tariffs applied by a large country should drive down foreign prices. Using another year of data including significant escalations in the trade war, we find that U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers. We show that the response of import values to the tariffs increases in absolute magnitude over time, consistent with the idea that it takes time for firms to reorganize supply chains. We find heterogeneity in the responses of some sectors, such as steel, where tariffs have caused foreign exporters to drop their prices substantially, enabling them to export relatively more than in sectors where tariff passthrough was complete.
Bretton Woods and the Reconstruction of Europe
Lee Ohanian et al.
Federal Reserve Working Paper, October 2019
Abstract:
The Bretton Woods international financial system, which was in place from roughly 1949 to 1973, is the most significant modern policy experiment to attempt to simultaneously manage international payments, international capital flows, and international currency values. This paper uses an international macroeconomic accounting methodology to study the Bretton Woods system and finds that it: (1) significantly distorted both international and domestic capital markets and hence the accumulation and allocation of capital; (2) significantly slowed the reconstruction of Europe, albeit while limiting the indebtedness of European countries. Our results also provide support for the utility of the accounting methodology in that it finds a sharp change in the behavior of domestic and international capital market wedges that coincides with the breakdown of the system.
The Global Impact of Brexit Uncertainty
Tarek Alexander Hassan et al.
NBER Working Paper, January 2020
Abstract:
Using tools from computational linguistics, we construct new measures of the impact of Brexit on listed firms in the United States and around the world; these measures are based on the proportion of discussions in quarterly earnings conference calls on the costs, benefits, and risks associated with the UK's intention to leave the EU. We identify which firms expect to gain or lose from Brexit and which are most affected by Brexit uncertainty. We then estimate effects of the different types of Brexit exposure on firm-level outcomes. We find that the impact of Brexit-related uncertainty extends far beyond British or even European firms; US and international firms most exposed to Brexit uncertainty lost a substantial fraction of their market value and have also reduced hiring and investment. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expect negative direct effects from Brexit (the first moment) should it come to pass. Most prominently, firms expect difficulties from regulatory divergence, reduced labor mobility, limited trade access, and the costs of post-Brexit operational adjustments. Consistent with the predictions of canonical theory, this negative sentiment is recognized and priced in stock markets but has not yet significantly affected firm actions.
U.S. Maritime Policy and Economic Efficiency
Joshua Hendrickson
University of Mississippi Working Paper, November 2019
Abstract:
Critics argue that maritime policy is protectionist legislation that restricts competition and reduces economic efficiency. In this paper, I argue the contrary. I begin with the premise that the primary role of the state is to provide national defense. A country must be able to protect its wealth, and therefore its capital, from plunder and/or destruction. This implies that a sufficient level of defense spending is increasing in the capital stock. An efficient solution is to tax capital to finance defense. Nonetheless, there is reason to believe that capital devoted to shipping imposes a lower marginal defense cost than other forms of capital because ships can be used as a naval auxiliary. If so, then one would expect that the optimal tax rate on shipbuilding and the merchant marine would be lower than other capital-intensive firms. Put differently, maritime subsidies during peacetime can be understood as the result of a Coaseian bargain in which the government compensates shipbuilders and the merchant marine during peacetime in exchange for their services during wartime. I argue that the history of U.S. maritime policy is broadly consistent with my theory. I conclude by discussing the current state of the merchant marine and maritime policy.