Trading Feedback
Transitory and Permanent Import Tariff Shocks in the United States: An Empirical Investigation
Stephanie Schmitt-Grohé & Martín Uribe
NBER Working Paper, July 2025
Abstract:
We estimate transitory and permanent import tariff shocks in the United States over the postwar period. We find that transitory tariff increases are neither inflationary nor contractionary, and are not associated with monetary tightening. In contrast, permanent tariff increases trigger a temporary rise in inflation (a one-off increase in the price level) and a brief tightening of monetary policy. Consistent with the intertemporal approach to the balance of payments, transitory tariff increases reduce imports and improve the trade balance, whereas permanent increases leave both largely unchanged. Transitory shocks account for approximately 80 percent of tariff movements. Overall, tariff shocks are estimated to be a minor driver of U.S. business cycle fluctuations on average and even during episodes of substantial tariff hikes, such as Nixon 1971, Ford 1975, and Trump 2018.
Trade and Industrial Policy in Supply Chains: Directed Technological Change in Rare Earths
Laura Alfaro et al.
NBER Working Paper, May 2025
Abstract:
Trade and industrial policies, while primarily intended to support domestic industries, may unintentionally stimulate technological progress abroad. We document this mechanism in the case of rare earth elements (REEs) -- critical inputs for manufacturing at the knowledge frontier, with low elasticity of substitution, inelastic supply, and high production and processing concentration. To assess the importance of REEs across industries, we construct an input-output table that includes disaggregated REE inputs. Using REE-related patents categorized by a large language model, sectoral TFP data, trade data, and physical and chemical substitution properties of REEs, we show that the introduction of REE export restrictions by China led to a global surge in innovation and exports in REE-intensive downstream sectors outside of China. To rationalize these findings and quantify the global impact of the adverse REE supply shock, we develop a quantitative general equilibrium model of trade and directed technological change. We also propose a structural method to estimate sectoral input substitution elasticities for REEs from patent data and find REEs to be complementary inputs. Under endogenous technologies and with complementary inputs, input supply restrictions on REEs induce a surge in REE-enhancing innovation and lead to an expansion of REE-intensive downstream sectors.
Foreign Political Risk and Technological Change
Joel Flynn et al.
NBER Working Paper, June 2025
Abstract:
This paper studies how innovation reacts to foreign political risk and shapes its economic consequences. In a model with foreign political shocks that can disrupt the supply of foreign inputs, we show that greater political risk abroad increases domestic innovation, thereby lowering reliance on risky sourcing countries. We then combine data on sector-level technology development with time-varying measures of industry-level exposure to foreign political risk and report three sets of empirical findings. First, sectors and commodities with higher exposure to foreign political risk exhibit significantly greater innovative activity. This finding holds across sectors in the US, across country-sector pairs in a global sample, and across critical minerals that are essential for modern economic activity. Second, the response of innovation is particularly strong when risk emanates from geopolitical adversaries. This is consistent with our finding that trade restrictions are more likely to emerge between non-allies following a rise in political risk in either country. Third, directed innovation reduces countries’ reliance on imports from risky foreign markets. In doing so, technological change amplifies the negative effects of domestic political risk on export performance.
Charity Begins at Home: Domestic Political Economy of Chinese Foreign Aid
Sibo Liu & Dong Zhang
Comparative Political Studies, forthcoming
Abstract:
How does an authoritarian donor’s domestic political economy shape its aid practices? We probe into the case of China, the largest authoritarian donor in the world, and contend that the logic of regime survival drives China’s aid policies to prioritize commercial interests and sustain the state capitalism model. By leveraging multiple data sources, we employ a difference-in-differences design and conduct our analysis at the country, industry, firm, and product levels. We empirically document that Chinese aid projects lead to a substantial surge of Chinese exports to aid recipient countries, generating large revenues primarily for Chinese state-owned enterprises (SOEs). In particular, the aid-induced trade benefits are concentrated among SOEs with low performance and large employment. Our analysis also rules out decreased trade costs, favorable trade terms, and the product price difference between SOEs and private firms as alternative explanations.
Commerce, coalitions, and global value chains: Coordinated and collective lobbying on trade
Hao Zhang
American Journal of Political Science, forthcoming
Abstract:
Global value chains (GVCs) have connected firms in complex networks within and across national borders. However, political economy models often assume away production linkages and thus fail to explain pervasive and diverse trade coalitions cutting across industries and firms. I develop a GVC-centered framework where production linkages through a common foreign partner foster interdependent preferences and collective action for trade liberalization. For empirical tests, I compile firm-to-firm supply chain networks, construct direct measures, and estimate various network models. I find that US firms with GVC linkages tend to lobby together, lobby on the same bill, and hire the same lobbyist. Furthermore, GVC linkages among lead firms increase collective lobbying through trade associations. Finally, I show that GVC linkages predict the formation and depth of preferential trade networks. These results provide microfoundations for new coalitional politics under GVCs and challenge the common assumption about industries and firms as isolated political actors.
Redacted Identities in Shipment Records: Evidence from Forced Labor Scrutiny in Supply Chains
Sandra Schafhäutle & Gurpal Sran
University of Pennsylvania Working Paper, February 2025
Abstract:
US Customs and Border Protection allows firms to request redaction of their own (and their suppliers') identifying information in transaction-level shipment records. We find that about 16% of shipment records from 2013 through 2023 have redacted identities, with significant variation across time, origin regions, and other shipment characteristics. Along with examining proprietary costs as a motive for firms to redact identities, we focus on an important but understudied force: supply chain scrutiny costs related to forced labor risks. Consistent with such costs, shipments from countries with forced labor vulnerabilities and weak government responses to forced labor are more likely to have redacted identities. We then exploit a series of events related to forced labor allegations in international cotton and apparel production that intensified supply chain scrutiny related to forced labor risks. Using a difference-in-difference-in-differences design, we find an increase in redactions for affected cotton and apparel shipments after these events. Overall, our evidence suggests that importers redact identities from shipment records in the presence of supply chain scrutiny costs introduced by public and regulatory attention to corporate social responsibility.
Common Ownership Around the World
Miguel Antón et al.
NBER Working Paper, June 2025
Abstract:
We study common ownership in 49 countries from 2005 to 2019 and show that it is pervasive and rising around the world. However, despite this global growth, common ownership is still considerably lower in all countries compared to the United States. It is particularly high and growing rapidly among the largest firms, a trend observed across all countries and regions. The rise of common ownership stems not only from increased institutional investment but also from its growing concentration, a development in which the Big Three (BlackRock, Vanguard, State Street) play a dominant role, particularly in the United States. Although non-Big Three institutional investors remain important in other countries, the significant increase in common ownership in many countries is primarily attributable to the breadth, size, and growth of Big Three holdings. We also investigate how common ownership is related to legal, institutional, and market characteristics such as investor protection laws, competition laws, mandatory ESG disclosure, and labor market frictions across firms and countries.
Resisting Populism through Financial Market Exposure: Experimental Evidence from Brexit
Saumitra Jha
Stanford Working Paper, May 2025
Abstract:
Populism has been on the rise, posing a threat to liberal democracy. Existing evidence suggests that globalization, economic shocks, and concerns over cultural change increase support for populist agendas. Yet less is known about interventions that can empower individuals to critically evaluate populist messaging. We argue that tailored exposure to financial markets can reduce support for populist policies because it can encourage learning about the gains of economic complementarity and cooperation and the costs of nativism and isolationism. We test this argument with an RCT implemented in the run-up to the Brexit referendum in which we randomly assigned British citizens to hold and trade complementary financial assets from the UK, EU and the US for six weeks. We show that this intervention increased citizens' willingness to vote to remain in the European Union during the Brexit Referendum, and particularly so when exposed to companies that exemplify EU-UK economic complementarity. These effects are stronger among swing participants and those more open to a European cultural identity.