Global Goods
Long-Run Effects of Trade Wars
David Baqaee & Hannes Malmberg
NBER Working Paper, April 2025
Abstract:
This short note shows that accounting for capital adjustment is critical when analyzing the long-run effects of trade wars on real wages and consumption. The reason is that trade wars increase the relative price between investment goods and labor by taxing imported investment goods and their inputs. This price shift depresses capital demand, shrinks the long-run capital stock, and pushes down consumption and real wages compared to scenarios when capital is fixed. We illustrate this mechanism by studying recent US tariffs using a dynamic quantitative trade model. When the capital stock is allowed to adjust, long-run consumption and wage responses are both larger and more negative. With capital adjustment, U.S. consumption can fall by 2.6%, compared to 0.6% when capital is held fixed, as in a static model. That is, capital stock adjustment emerges as a dominant driver of long-run outcomes, more important than the standard mechanisms from static trade models -- terms-of-trade effects and misallocation of production across countries.
Trade Policy, Exchange Rates, and the Globalization Surge of the 1990s
Douglas Irwin
Journal of Economic History, forthcoming
Abstract:
The decision by developing countries to open up their economies to foreign trade and investment in the 1980s and 1990s was a momentous event in world history. How and why did this trade policy revolution take place? Most accounts of trade politics stress domestic interest groups or trade agreements as driving policy changes, but these explanations fail in this period. This paper notes that many import restrictions were imposed for balance of payments purposes, as a way of avoiding a devaluation and protecting foreign exchange reserves from depletion under fixed exchange rates. A shortage of foreign exchange in the mid-1980s forced countries, under the guidance of economists, to shift to a more flexible exchange rate system that boosted export earnings and made import controls unnecessary for payments balance. Just as seen during the Great Depression, the exchange rate regime was a key factor in a country's trade policy.
Economic Espionage and Knowledge Diffusion Under US-China Rivalry
Andrew Kao & Karthik Tadepalli
Harvard Working Paper, January 2025
Abstract:
Knowledge diffusion in the 21st century is influenced by geopolitics. We examine how knowledge diffusion evolves under US-China rivalry by studying how economic espionage affects firms, and how they adjust their knowledge openness in response to espionage. Compiling a comprehensive dataset of economic espionage incidents, we first establish that espionage substantially impacts targeted firms. In an event study design, firms see revenues and R&D expenditures decline by 20% within three years of being targeted for espionage. We find no effect from a placebo sample of unsuccessful attempts at espionage, confirming that these results are not driven by differential trends in targeted firms. Espionage has industry-level effects, with US exports in targeted sectors declining by 50% over a decade, while Chinese exports rise by a similar amount. We then examine how firms adjust their knowledge sharing practices in response. Surprisingly, we find no evidence that they differentially restrict knowledge flows to China. Targeted firms are no less likely to patent with Chinese inventors or have their patents cited abroad. However, firms differentially reduce their employment of Asian scientists after espionage compared to non-Asian scientists and Asian non-scientists, suggesting that they perceive high espionage risk from Asian scientists in particular.
Reshoring, automation, and labor markets under trade uncertainty
Hamid Firooz, Sylvain Leduc & Zheng Liu
Journal of International Economics, forthcoming
Abstract:
We study the implications of trade uncertainty for reshoring, automation, and U.S. labor markets. Rising trade uncertainty creates incentives for firms to reduce exposure to foreign suppliers by moving production and distribution processes to domestic producers. However, we argue that reshoring does not necessarily bring jobs back to the home country or boost domestic wages, especially when firms have access to labor-substituting technologies such as automation. Automation improves labor productivity and facilitates reshoring, but it can also displace jobs. Furthermore, automation poses a threat that weakens the bargaining power of unskilled workers in wage negotiations, depressing their wages and raising the skill premium and wage inequality. Our model predictions are in line with industry-level empirical evidence.
Beyond Tariffs: How Did China's State-Owned Enterprises Shape the US-China Trade War?
Felipe Benguria & Felipe Saffie
NBER Working Paper, March 2025
Abstract:
We study the role played by Chinese state-owned firms during the US-China trade war. Based on measures constructed from Chinese firm-level customs microdata, we show that the presence of state-owned enterprises (SOEs) in Chinese imports led to a large negative impact on US exports in addition to the effect of tariffs. Abstracting from general equilibrium effects, while tariffs account for an 8% decline in US exports to China, the SOE effect accounts for a 4% decline. This SOE effect was concentrated toward the end of 2018 and start of 2019, point at which a vast majority of products had already been targeted by tariffs. Further, the SOE effect was concentrated among agricultural goods and industrial supplies, as well as among industries located in US regions with a high share of Republican votes. We also find that US exports were rerouted to the rest of the world in response to Chinese tariffs, but not in response to reduced imports by Chinese SOEs.
Attitudes toward artificial intelligence (AI) and globalization: Common microfoundations and political implications
Beatrice Magistro et al.
American Journal of Political Science, forthcoming
Abstract:
Advances in artificial intelligence (AI) are reshaping labor markets and sparking political debates. Like economic globalization, AI developments promise benefits, including job creation and lower prices, but also costs such as job displacement, raising crucial questions about public perceptions. Will AI, like globalization, challenge existing paradigms and trigger a backlash? Leveraging a conjoint experiment with 6,000 respondents from the United States and Canada, we examine public opinion toward offshoring and generative AI, focusing on the multidimensional trade-offs between job and price changes. Across all scenarios, respondents are equally or more sensitive to price changes than employment shifts. AI is favored over offshoring, especially among Democrats, highlighting an emerging partisan divide in the United States. Republicans and Canadians show more varied support, indicating AI is not immune to opposition. By focusing on the microfoundations of opinion formation, we identify scenarios that may trigger or temper protectionist stances.
Strategies of a Rising Power: Chinese Economic Influence in Regional International Organizations
Alicia Chen
British Journal of Political Science, March 2025
Abstract:
How does China use development finance to gain influence in international organizations? Leveraging the exogenous rotation of ASEAN and African Union Chairmanship, I estimate the effect of regional leadership on Chinese commitments. Results suggest that Chinese projects are politically motivated only when the lending and recipient entities are linked to the Chinese and host governments. Governments that assume the Chair received seven times more commitments from Chinese government agencies relative to non-Chair years, a $90 million increase for the average project. By contrast, there is no evidence to suggest that Chinese banks act as agents of Beijing. Moreover, I find a consistent null relationship between temporary UN Security Council status and Chinese finance, unlike established findings about Western donors, suggesting that China is deliberately seeking regional influence. These results underscore the importance of considering the specific actors involved in China's economic statecraft.
The Political Economy of Firm Networks: CEO Ideology and Global Trade
Elisabeth Kempf, Mancy Luo & Margarita Tsoutsoura
NBER Working Paper, April 2025
Abstract:
We examine how the political ideology of corporate leaders shapes cross-border firm networks. Exploiting changes in ideological alignment between U.S. firm CEOs and foreign governments around close foreign elections, we show that U.S. firms are more likely to terminate trade relationships with countries led by governments whose ideology becomes more distant from that of their CEOs. The impact is concentrated among CEOs holding strong political views, and is particularly pronounced for shorter trade relationships, suggesting ideological alignment is more relevant in more flexible and substitutable connections. Our findings highlight the role of ideology in shaping the formation and persistence of international firm networks.
Pains or gains: Trade war, trade deficit, and tariff evasion
Yi Che, Donglin Lin & Yan Zhang
Journal of International Economics, May 2025
Abstract:
This paper reveals that the reduction in the US-China trade deficit during the trade war obscured reporting discrepancies in US imports of Chinese products due to tariff evasion. We empirically examine the effect of the US-China trade war on tariff evasion in US imports of Chinese goods and provide direct evidence that market demand of entry states contributes significantly to tariff evasion. Using the input-output table, we find that a one standard deviation increase in local demand causes a 1.312-fold rise in tariff evasion for affected products post-trade war. This effect mainly works through intermediate goods, and its impact grows as importers' tariff liabilities increase. Further analysis considering local social environments shows that voters' attitudes toward trade protection and the development of labor unions play crucial roles in mediating the influence of market demand on tariff evasion.
International Border Restrictions During COVID-19 as Global Health Security Theatre
Catherine Worsnop
British Journal of Political Science, March 2025
Abstract:
During outbreaks of diseases like cholera, HIV/AIDS, H1N1, and Ebola, governments often impose international border restrictions (for example, quarantines, entry restrictions, and import restrictions) that disrupt the economy without stopping the spread of disease. During COVID-19, international travel restrictions were ubiquitous despite initial World Health Organization recommendations against such measures because of their limited public health benefit and the potential for imposing a range of harms. Why did governments adopt these measures? This article argues and finds evidence that governments use international border restrictions as security theatre: 'measures that provide not security, but a sense of it'. Quantitative analysis of original data on states' first border restrictions during the pandemic suggests that behaviour was not just driven by the risk of COVID-19 spread. Instead, nationalist governments, which are likely to be attracted to policies associating disease with foreigners, were more likely to impose border restrictions, did so more quickly, and adopted domestic measures more slowly. A case study of the US further illustrates the security theatre logic. The findings imply that overcoming or redirecting governments' attraction to security theatre could promote international cooperation during global health emergencies.