Trading with the Enemy
China's Rise -- Threat or Opportunity? The Pacifying Effect of Chinese Foreign Direct Investment on American Threat Perceptions
Aycan Katitas
Journal of Politics, forthcoming
Abstract:
What drives mass attitudes toward China? Scholars have written extensively on the political consequences of China's recent integration into the world economy. Yet we lack causal empirical evidence on the relationship between China's rising outward investment and perceptions toward China. I exploit foreign direct investment (FDI)'s agglomeration tendency to identify the effect of Chinese FDI on American views of China as a threat. I show that the announcement of Chinese greenfield FDI projects lessens concerns about China due to economic sociotropic considerations: Chinese greenfield FDI is believed to generate economic benefits broadcast to the public by the local news media. By contrast, Chinese takeovers of American companies, which do not stimulate the labor market, are not associated with a decline in threat perceptions. Findings are robust to controls for other political and economic conditions such as trade shocks from China and are mediated by respondents' attachment to national identity.
Congressional position-taking on punitive tariffs: President Trump's 2018 auto tariff
Michael Rocca & Miao Wang
Business and Politics, forthcoming
Abstract:
On 1 March 2018, President Trump declared a 25% tariff on certain steel imports by invoking Section 232 of the 1962 Trade Expansion Act. The tariff pitted two of America's most storied and interconnected industries, steel and auto producers, against one another and made allies out of longtime bitter political opponents on Capitol Hill. Later that same year, President Trump doubled down on the steel tariff when he initiated a Section 232 investigation on auto and auto parts imports. The auto industry blasted the proposal, while steel offered its strong support. This paper examines the congressional response to President Trump's proposed auto tariff. Specifically, we explain why 159 MCs signed a letter opposing the tariff. After controlling for other factors, such as district interests and campaign contributions, we find that ideology matters more than party affiliation on whether legislators signed the auto letter. We also find the second dimension of the DW-NOMINATE score to matter, suggesting the strong presence of intra-party cleavages. Our findings highlight the complex nature of trade policy as a domain of bipartisan agreement amidst broader political polarization and at a time when traditional party platforms on the issue are rapidly changing.
The paradox of transfers: Distribution and the Dutch disease
Nazanin Behzadan & Richard Chisik
Southern Economic Journal, January 2025, Pages 1140-1175
Abstract:
We develop a new model of international trade with nonhomothetic preferences whereby within-country income distribution affects the pattern of trade and economic growth. Alternative forms of foreign transfers, such as foreign aid and remittances, interact with the income distribution in dissimilar manners, which in turn generates differences in spending patterns, production patterns, and the pattern of international trade. In a three sector model with international trade and production we show that while remittances foster economic growth, foreign aid can cause economic stagnation. A production shift to the sector with less long-run growth potential is known as the Dutch disease and in our model the disease is triggered by within-country income differences and the form of the foreign transfer. We empirically verify these hypotheses with data from a panel covering the years 1991-2009 while controlling for the issues of omitted variable bias and the possible endogeneity of foreign aid and remittances.
Territory flows and trade flows between 1870 and 2008
Yushan Hu, Ben Li & Penglong Zhang
Journal of Economic Behavior & Organization, December 2024
Abstract:
Countries gain and lose territories over time, generating territory flows that represent the transfer of territorial sovereignty. Countries also export and import goods, creating trade flows that represent the transfer of merchandise ownership. We find a substitution between these two international flows during the years 1870 and 2008; that is, country pairs with greater trade flows have smaller territory flows. This indicates how international trade enhances international security: reciprocal goods transactions discourage irreciprocal territorial exchanges.
Can Marketing Enable Firms to Counter Import Competition? Evidence from the China Shock
Nandini Ramani
Journal of Marketing, forthcoming
Abstract:
Increasingly, United States (US) firms have been threatened by import competition. For example, Chinese imports to the US increased from USD 18.97 billion in 1991 to USD 536.26 billion in 2022. Yet little research has examined the role of marketing in combating import competition. Addressing this gap, the author combines developments in the upper echelons, dynamic capabilities, and resource-based view perspectives to develop hypotheses of how marketing can help incumbent firms overcome import competition. To achieve identification, the author exploits the exogenous shock of conferral of Permanent Normal Trade Relations (PNTR) status to China that differentially exposed US industries to import competition. The hypotheses are tested using a differences-in-differences estimation on 7,197 firm-year observations. The findings indicate that import competition hurts incumbent firms' revenue growth. However, incumbent firms' marketing department power and market-based assets (strategic differentiation and customer relationship capital) mitigate the adverse effects of import competition on revenue growth. The findings, which highlight the hitherto overlooked role of marketing in countering import competition, extend theory and generate practical implications.
International economic relations and American support for antitrust policy
Ryan Brutger & Amy Pond
Business and Politics, forthcoming
Abstract:
Antitrust policy aims to reduce market concentration and increase competition among firms. Contemporary antitrust is sensitive to both domestic and international considerations. Internationally, the market is dominated by the largest firms, raising questions about the competitiveness of domestic firms and the application of antitrust against foreign firms. Domestically, public support for antitrust is needed for continued enforcement. This paper examines how international markets shape public support for antitrust in the United States. Using media analysis, we find that antitrust is increasingly in the news, and that international competition is referenced in antitrust debates. We theorize that support for antitrust is shaped by concerns for the competitiveness of domestic firms, relative to foreign competition, and that these concerns vary based on individuals' levels of nationalism. We test our theory using a survey experiment and find that individuals are especially concerned with being placed at a disadvantage relative to foreign competitors. Interestingly, we find that using antitrust laws against foreign firms yields divergent reactions -- highly nationalistic Americans increase their support for strong antitrust laws, while those with low levels of nationalism decrease support. The paper highlights the importance of global competition in shaping preferences for domestic regulation.
Drive Down the Cost: Learning by Doing and Government Policies in the Global EV Battery Industry
Panle Jia Barwick et al.
NBER Working Paper, January 2025
Abstract:
Electric vehicle (EV) battery costs have declined by more than 90% over the past decade. This study investigates the role of learning-by-doing (LBD) in driving this reduction and its interaction with two major government policies - consumer EV subsidies and local content requirements. Leveraging rich data on EV models and battery suppliers, we develop and estimate a structural model of the global EV industry that incorporates heterogeneous consumer choices and strategic pricing behaviors of EV producers and battery suppliers. The model allows us to recover battery costs for each EV model and quantify the extent of LBD in battery production. The learning rate is estimated to be 7.5% during our sample period after controlling for industry technological progress, economies of scale, input costs, and EV assembly experience. LBD magnifies the effectiveness of consumer EV subsidies and drives cross-country spillovers from these subsidies. Upstream battery suppliers capture only a minor share of LBD's economic benefits, and consumer EV subsidies correct for the under-provision of learning and improve social welfare. China's local content requirement helps domestic suppliers gain a competitive advantage at the cost of consumers and foreign suppliers but would have harmed domestic welfare if delayed by five years.
Political relations and media coverage
Jun Myung Song, Bohui Zhang & Thomas Ruf
Journal of Banking & Finance, February 2025
Abstract:
We study the impact of political relations on media coverage. Using a sample of 3,290 American Depository Receipts (ADRs) from 45 countries, we find that deteriorating political relations between the US and an ADR firm's home country induce negative coverage by the US media of the ADR firm. To alleviate endogeneity, we adopt France's and Germany's opposition to the Iraq War and the inauguration of the US president as two shocks to bilateral political relations between the US and foreign countries. In placebo tests, we show no negative effect of political relations on ADR firms' press releases or non-US media coverage. We further document the three economic mechanisms underlying the impact of political relations on media coverage: US journalists' country sentiment, a country's popularity among US readers, and the US media's political beliefs. Finally, we document two consequences of negative coverage by the US media: investors respond less to negative news of firms from countries with deteriorating political relations with the US, and negative coverage leads to a greater likelihood of firms terminating their ADRs.