Lost in Trade
Economic Espionage and Innovation Restrictions
Andrew Kao & Karthik Tadepalli
Harvard Working Paper, December 2025
Abstract:
We provide systematic evidence on the economic damages from espionage to US firms and industries. Compiling a comprehensive dataset of publicly disclosed espionage incidents from 1995-2024, we establish that espionage has substantial negative effects on targeted firms. In an event-study design, revenues and R&D expenditures at targeted firms decline by roughly 40% within five years, with effects persisting for up to a decade. These effects do not appear for firms unsuccessfully targeted for espionage, supporting a causal interpretation. These firm-level damages translate into measurable aggregate effects on US industry: exports in targeted sectors decline by 60% over a decade. Given these substantial damages, we investigate whether firms restrict knowledge sharing in response to espionage. Across a wide range of outcomes, we find no evidence of such restrictions. Firms do not reduce their patenting with foreign inventors, and do not discriminate in employment based on perceived espionage risk. Overall, espionage has clear economic harms to targeted firms and US industry, but firms are puzzlingly unresponsive in how they manage innovation.
The Silk Road of Ashes: Exposure to NAFTA and Adult Mortality
Hamid Noghanibehambari & Jason Fletcher
NBER Working Paper, February 2026
Abstract:
The implementation of the North American Free Trade Agreement (NAFTA) in 1994 resulted in a great restructuring in industry composition in the US, with substantial heterogeneity across local areas. In this paper, we investigate the effects of NAFTA on the mortality rates of the working-age population. We implement event studies and difference-in-difference analyses to examine dynamic changes in mortality rates in different years relative to NAFTA and in areas with differential exposure to NAFTA. Comparing areas with high versus low trade exposure measures, we find a 2.1 percent rise in the mortality rate of those aged 25-55. A back-of-the-envelope calculation suggests a 7.3 percent rise in mortality for the treated population, who lost their job due to NAFTA. Further analyses using a wide range of alternative data sources suggest that reductions in income-employment, reductions in wealth, increases in disability, decreases in health insurance coverage, decreases in private health insurance, and a higher likelihood of reliance on presumably lower quality public insurance as candidate mechanisms.
Consumer Credit and the Incidence of Tariffs: Evidence from the Auto Industry
Kristine Hankins, Morteza Momeni & David Sovich
American Economic Review, February 2026, Pages 627-673
Abstract:
Captive finance subsidiaries create a channel for trade policy to affect consumer credit. Examining the impact of the Trump administration's metal tariffs on captive automobile lenders, we find that consumers received higher interest rates from captive lenders after the tariffs relative to unaffected noncaptive lenders. Further, we document a disparate impact on low-income borrowers and in areas with less lending competition. Our results suggest that tariffs may impact not only the price of goods but also the financing terms of purchases. Thus, focusing solely on directly affected product prices may underestimate tariff pass-through significantly.
Global Trade, Tariff Uncertainty and the U.S. Dollar
Ṣebnem Kalemli-Özcan, Can Soylu & Muhammed Yildirim
NBER Working Paper, January 2026
Abstract:
We analyze how tariff uncertainty affects exchange rates, motivated by the U.S. dollar’s depreciation after the 2025 tariff announcements. Standard macro-trade models predict that unilateral tariffs appreciate the implementing country’s currency, but we show this result can be overturned by policy uncertainty. We build a two-country general equilibrium model with risk-averse agents and segmented financial markets, where tariff volatility enters uncovered interest parity through a risk-premium wedge. Higher tariff uncertainty increases precautionary savings and risk premia, leading to immediate currency depreciation even as tariffs rise. Quantitatively, the model replicates the size and timing of the observed dollar depreciation episode dynamics.
Currency Pegs, Trade Imbalances and Unemployment: A Reevaluation of the China Shock
Bumsoo Kim, Marc De la Barrea & Masao Fukui
NBER Working Paper, February 2026
Abstract:
We develop a dynamic quantitative model of trade and labor adjustment, incorporating nominal wage rigidity and consumption–saving decisions, to study how China’s currency peg interacted with its rapid growth in shaping the US economy. We show that the peg temporarily boosts China’s export growth by preventing an appreciation of the Chinese currency, thereby amplifying the US labor-market consequences of the China shock. At the same time, the temporary export boom increases China’s savings and leads to a larger US trade deficit. Calibrating the model to match trade and labor-market flow data, we find that China’s currency peg played a quantitatively important role in the US manufacturing decline, the widening US trade deficit, and unemployment dynamics. These results underscore the importance of exchange-rate adjustment (or the lack thereof) for understanding trade shocks. We also find that the overall welfare impact of the China shock remains significant and positive.
Trade and US Inequality in the Tokyo Round
Andrew Greenland, James Lake & John Lopresti
NBER Working Paper, January 2026
Abstract:
Against a backdrop of sharply rising inequality, the Tokyo Round of the GATT resulted in a 1.6 percentage point reduction in average US tariffs — larger than CUSFTA, NAFTA, and the liberalization accompanying the granting of PNTR to China. We construct a novel IV based on the so-called “Swiss formula” that governed the Tokyo Round tariff liberalization to provide evidence of its effects on imports and inequality. Instrumented tariff reductions explain approximately 20% of the rise in income inequality between non-production and production workers between 1979 and 1988. This effect is largest among women, workers in routine occupations, and workers in more technology-intensive industries, suggesting a complementarity between trade liberalization and skill-biased technological change.
Historical military conflict, current trade tensions, and global supply chains
Yichuan Hu, Chang Li & Shu Lin
Journal of International Economics, March 2026
Abstract:
We study how two significant conflicts between China and the U.S. -- the Korean War and the current trade war -- affect global supply chains. Using hand-collected data, we find that the death toll from the Korean War in a chairperson's city of origin strongly influences Chinese firms' selection of U.S. suppliers today. Moreover, the current trade tensions reactivate memories of wartime trauma, significantly amplifying their negative effects. We identify two key mechanisms driving this change: Chinese retaliatory tariffs and increased media coverage of the Korean War within China. A variety of empirical tests suggest that our findings are causal and are not a result of U.S. suppliers' choice.
The Macroeconomic Effects of Tariffs: Evidence From U.S. Historical Data
Tamar den Besten & Diego Känzig
NBER Working Paper, February 2026
Abstract:
We study the macroeconomic effects of tariff policy using U.S. historical data from 1840–2024. We construct a narrative series of plausibly exogenous tariff changes -- based on major legislative actions, multilateral negotiations, and temporary surcharges -- and use it as an instrument to identify a structural tariff shock. Tariff increases are contractionary: imports fall sharply, exports decline with a lag, and output and manufacturing activity drop persistently. The shock transmits through both supply and demand channels. Prices rise in the full sample but fall post-World War II, a pattern consistent with changes in the monetary policy response and with stronger international retaliation and reciprocity in the modern trade regime.