Exchange Programs

Kevin Lewis

May 17, 2024

Are trade wars class wars? The importance of trade-induced horizontal inequality
Kirill Borusyak & Xavier Jaravel
Journal of International Economics, July 2024 


What is the nature of the distributional effects of trade? This paper demonstrates conceptually and empirically the importance of "trade-induced horizontal inequality," i.e. inequality that occurs among workers with the same level of earnings before the trade shock. This type of inequality does not affect the income distribution but generates winners and losers at all income levels. To quantify the horizontal inequality and changes in the income distribution induced by trade in a data-driven way, we develop a characterization of the welfare impacts, governed by simple and intuitive statistics of labor market and consumption exposure to trade. In the U.S., we find substantial heterogeneity in exposure and thus in the welfare effects of trade shocks across workers. Over 99% of the variance of welfare changes from trade shocks arises within income deciles. These findings run against a popular narrative that "trade wars are class wars." 

When Protectionism Kills Talent
Mehmet Canayaz, Isil Erel & Umit Gurun
Ohio State University Working Paper, March 2024 


We examine the repercussions of protectionist policies implemented in the United States since 2018 on the composition of workforce and career choices within the semiconductor industry. Using a unique dataset of 1.6 million active engineers and scientists working in the chip manufacturing industry worldwide, we find that the shift towards protectionism, aimed at reviving domestic manufacturing and employment, paradoxically resulted in a significant drop in hiring domestic talent. The effect is stronger for entry-level and junior positions, indicating a disproportionate impact on newcomers to the workforce. Additionally, we trace the trajectories of undergraduate and graduate cohorts possessing chip-related skills over time, and document significant shifts away from the chip industry. Our findings highlight the challenges in achieving the goals of initiatives like the 2022 CHIPS and Science Act, emphasizing the need to address talent shortages to sustain the semiconductor industry's intended growth.

How Do U.S. Firms Withstand Foreign Industrial Policies?
Xiao Cen, Vyacheslav Fos & Wei Jiang
NBER Working Paper, May 2024 


China's industrial policies ("Five-Year Plans") displace U.S. production/employment and heighten plant closures in the same industries as those targeted by the policies in China. The impact was not anticipated by the stock market, but U.S. companies in the "treated industries" suffer a valuation loss afterwards. Firms shift production to upstream or downstream industries benefiting from the boost, or offshore to government-endorsed industries in China. Such within-firm adjustments offset the direct impact. U.S. firms are better able to withstand foreign government interventions provided that they enjoy flexibility, including preexisting business toeholds in the "beneficiary" industries, financial access, and labor fluidity.

To Find Relative Earnings Gains After the China Shock, Look Outside Manufacturing and Upstream
Justin Pierce, Peter Schott & Cristina Tello-Trillo
NBER Working Paper, May 2024 


We examine US workers' employment and earnings before and after trade liberalization with China. Among workers initially employed in manufacturing, we find substantial and persistent declines in both outcomes, with indirect exposure via input-output linkages exacerbating the negative effects of direct exposure. For workers initially employed outside manufacturing, however, we find that the positive impact of greater upstream exposure via inputs more than offsets the adverse impacts of own- and downstream exposure, inducing relative earnings gains. We also find that spatial exposure is more influential than industry exposure.

Stolen Secrets: The Effect of Trade Secret Theft on Corporate Innovation
Filippo Curti et al.
Federal Reserve Working Paper, February 2024 


Trade secret theft, and more broadly intellectual property (IP) theft, have resurfaced to the public attention amid the U.S.-China geopolitical conflict. In this paper, we document the detrimental effects of IP theft on innovation at the targeted firms whose trade secrets are stolen. Following the theft, targeted firms display a persistent drop in innovation outcomes, including the number of patents, patent value, and patent impact. These firms experience a decline in profitability, indicating that IP theft hurts their economic prospects. Importantly, the adverse effects of trade secret theft also spill over to the business partners of the targeted firms.

World Productivity: 1996-2014
Mehrdad Esfahani, John Fernald & Bart Hobijn
American Economic Journal: Macroeconomics, forthcoming


We use a new growth accounting method to quantify the drivers of world total factor productivity (TFP) growth during 1996-2014 and uncover four main results. World productivity growth is volatile from year to year. This mainly reflects reallocation of labor across country-industries. The contribution of country-industry level productivity growth to world productivity is relatively constant over time. This constancy masks that the increased importance of emerging economies offset a productivity slowdown in advanced economies. After 2008, this offsetting effect dissipated and world TFP growth declined. These conclusions are robust to the inclusion of markups in the analysis.

Human Capital Development under Trade Conflict
Weizheng Lai & Xun Li
University of Maryland Working Paper, April 2024 


This paper studies the impact of China-US trade war on human capital development in China, as captured by college major choice. We conduct both theoretical and empirical analyses. The simple model indicates that information signaling better prospects for STEM graduates can push high ability students toward STEM majors. Our empirical investigation leverages novel, detailed data on college admission statistics. We document an increased gap in admission cutoffs between STEM and non-STEM majors after the trade war broke out in 2018, implying a shift of high ability students toward STEM majors. This increase in the cutoff gap is more pronounced in provinces highly exposed to additional US tariffs. We offer evidence that the behavioral change in major choice is due to career considerations based on observed advantages of STEM graduates or attention to STEM-favorable national development plans, rather than nationalistic responses to the nation's call for tech self-sufficiency.

Gendered Globalization: The Relationship between Globalization and Gender Gaps in Employment and Occupational Opportunities 
Yoav Roll, Moshe Semyonov & Hadas Mandel
Research in Social Stratification and Mobility, forthcoming 


Despite the steady increase in women's labor force participation, there are still substantial cross-country variations in women's rates of gainful employment and gender-linked occupational inequality. Utilizing micro-data for 41 countries (circa 2013) obtained from the Luxembourg Income Study (LIS, 2023), we examine the extent to which globalization and each of its three components -- economic, social, and political -- affect gender-based economic inequality. Specifically, we investigate the effects of globalization and each of its components on two outcomes: the relative odds of women's labor force participation, and of their obtaining lucrative managerial and professional jobs (vertical segregation). The findings establish a relationship between globalization and an increase in the relative odds of women participating in the work force. However, there is also a relationship between globalization and a reduction in women's odds of obtaining lucrative managerial and professional jobs. The findings also indicate that social globalization is more consequential for gender inequality in the labor market than either economic or political globalization. We discuss the findings in light of theory and previous research on globalization and gender-based inequality.


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