Supply Chained

Kevin Lewis

December 21, 2021

Local Economic and Political Effects of Trade Deals: Evidence from NAFTA
Jiwon Choi et al.
NBER Working Paper, November 2021

Why have white, less educated voters left the Democratic Party over the past few decades? Scholars have proposed ethnocentrism, social issues and deindustrialization as potential answers. We highlight the role played by the 1994 North American Free Trade Agreement (NAFTA). In event-study analysis, we demonstrate that counties whose 1990 employment depended on industries vulnerable to NAFTA suffered large and persistent employment losses relative to other counties. These losses begin in the mid-1990s and are only modestly offset by transfer programs. While exposed counties historically voted Democratic, in the mid-1990s they turn away from the party of the president (Bill Clinton) who ushered in the agreement and by 2000 vote majority Republican in House elections. Employing a variety of micro-data sources, including 1992-1994 respondent-level panel data, we show that protectionist views predict movement toward the GOP in the years that NAFTA is debated and implemented. This shift among protectionist respondents is larger for whites (especially men and those without a college degree) and those with conservative social views, suggesting an interactive effect whereby racial identity and social-issue positions mediate reactions to economic policies. 

The US-China Trade War and Global Reallocations
Pablo Fajgelbaum et al.
NBER Working Paper, December 2021

We study global trade responses to the US-China trade war. We estimate the tariff impacts on product-level exports to the US, China, and rest of world. On average, countries decreased exports to China and increased exports to the US and rest of world. Most countries export products that complement the US and substitute China, and a subset operate along downward-sloping supplies. Heterogeneity in responses, rather than specialization, drives export variation across countries. Surprisingly, global trade increased in the products targeted by tariffs. Thus, despite ending the trend towards tariff reductions, the trade war did not halt global trade growth. 

U.S. Housing as a Global Safe Asset: Evidence from China Shocks
William Barcelona, Nathan Converse & Anna Wong
Federal Reserve Working Paper, November 2021

This paper demonstrates that the measured stock of China's holding of U.S. assets could be much higher than indicated by the U.S. net international investment position data due to unrecorded historical Chinese inflows into an increasingly popular global safe haven asset: U.S. residential real estate. We first use aggregate capital flows data to show that the increase in unrecorded capital inflows in the U.S. balance of payment accounts over the past decade is mainly linked to inflows from China into U.S. housing markets. Then, using a unique web traffic dataset that provides a direct measure of Chinese demand for U.S. housing at the zip code level, we estimate via a difference-in-difference matching framework that house prices in major U.S. cities that are highly exposed to demand from China have on average grown 7 percentage points faster than similar neighborhoods with low exposure over the period 2010-2016. These average excess price growth gaps co-move closely with macro-level measures of U.S. capital inflows from China, and tend to widen following periods of economic stress in China, suggesting that Chinese households view U.S. housing as a safe haven asset. 

Selling Indulgences: The Political Economy of Tariff Exemption Grants
Veljko Fotak et al.
University of Oklahoma Working Paper, November 2021

We investigate whether firm-level political connections affect the allocation of exemptions from the tariffs imposed on $550 billion of Chinese goods imported to the United States annually beginning in 2018. Firms reporting higher political lobbying expenditures in prior years are more likely to receive exemption approvals. Our evidence points to politicians not only rewarding supporters, but also punishing the opposition: past campaign contributions to the party in power increase approval likelihood, while past contributions to the opposition party increase the chance of rejection. These results strongly suggest quid pro quo arrangements between politicians and firms, trading campaign contributions for tariff exemptions, rather than an “information” channel linking access to politicians to regulatory outcomes. Event study results show that tariff exemptions are valuable to applicants: approval announcements increase market capitalizations of applicant firm by approximately $51 million, while rejected applicants experience negative abnormal returns. Markets correctly anticipate that politically connected firms are more likely to receive exemptions, indicating that these quid pro quo arrangements are transparent to market participants. 

Unintended consequences: Can the rise of the educated class explain the revival of protectionism?
Paolo Giordani & Fabio Mariani
Journal of Economic Theory, forthcoming

This paper provides a rationale for the revival of protectionism, based on the rise of the educated class. In a trade model with heterogeneous workers and entrepreneurs, globalization generates aggregate gains but has distributional effects, which can be attenuated through taxation. By playing a two-stage political game, citizens decide on trade openness and the extent of redistribution. In this setting, trade liberalization is politically viable as long as the losers from trade are compensated through the redistributive mechanism. When skilled workers account for a large share of the population, however, there may be limited political support for redistribution, and those who are left behind by globalization – namely unskilled workers and importing-sector entrepreneurs – can form a coalition to impose protectionist measures. We then build a dynamic version of the model, where redistribution promotes social mobility. Our analysis suggests that globalization – by favoring the ascent of the educated class and thus eroding the political support for redistribution – may ultimately breed its own decline. 

Globalization and U.S. Corporate Tax Policies: Evidence from Import Competition
Tao Chen, Chen Lin & Xiang Shao 
Management Science, forthcoming

This paper studies how globalization affects the corporate tax policies of U.S. manufacturing firms. Using U.S.-granting China Permanent Normal Trade Relations as a quasi-natural experiment, we find a significant increase in tax reduction activities for firms facing higher exposure to Chinese imports. The effect is more pronounced for firms with higher managerial slack. We also find that the effect is stronger for firms in less diversified products market and faster changing industries. We also show that U.S. firms facing higher Chinese import competition are more likely to engage in other tax-motivated activities: acquisition of subsidiaries in low-tax regions and suspected transfer pricing. Furthermore, we explore the 2017 tax cut and the recent U.S.-China trade dispute and find that firms engage less in tax reduction activities after the 2017 tax cut and after the tariff increase for Chinese imports. 

"Leakage" in International Regulatory Regimes: Did the OECD Anti-bribery Convention Increase Bribery?
Terrence Chapman et al.
Quarterly Journal of Political Science, December 2021, Pages 387-427

When do well-intended regulatory regimes have unintended consequences? We examine one obstacle to successful regulation, "regulatory leakage," in the context of the OECD Anti-Bribery Convention (ABC). Leakage occurs when regulated behavior decreases for actors under a regime's jurisdiction, but increases among those outside of it. We analyze a formal model that demonstrates how the ABC may simultaneously reduce bribery among firms from member countries, while increasing bribery by firms from non-ABC member countries. We also show how the ABC may lead firms from ABC member countries to shift to bribery through intermediaries. New empirical evidence of MNC activity in Vietnam shows evidence of both regulatory leakage and bribery through intermediaries.

Jacksonian Consular Reform and the Forging of America’s First Global Bureaucracy
Simeon Andonov Simeonov
Journal of Policy History, October 2021, Pages 401-428

Abstract: As revolutions swept across Central and South America in the 1820s and 1830s, Andrew Jackson’s administration undertook a landmark reform that transformed the US foreign policy apparatus into the nation’s first global bureaucracy. With the introduction of Edward Livingston’s 1833 consular reform bill to Congress, the nation embarked on a long path toward the modernization of its consular service in line with the powers of Europe and the new American republics. Despite the popularity of Livingston’s plan to turn a dated US consular service comprised of mercantile elites into a salaried professional bureaucracy, the Jacksonian consular reform dragged on for more than two decades before the passing of a consular bill in 1856. Contrary to Weberian models positing a straightforward path toward bureaucratization, the trajectory of Jacksonian consular reform demonstrates the power of mercantile elites to resist central government regulation just as much as it highlights how petty partisans—the protégé consuls appointed via the Jacksonian “spoils system”—powerfully shaped government policy to achieve personal advantages. In the constant tug-of-war between merchant-consuls and Jacksonian protégés, both groups mobilized competing visions of the “national character” in their correspondence with the Department of State and in the national press. Ultimately, the Jacksonian reform vision of an egalitarian and loyal consular officialdom prevailed over the old mercantile model of consulship as a promoter of national prestige and commercial expertise, but only after protégé consuls successfully exploited merchant-consuls’ perceived inability to compete with the salaried European officials across the sister-republics of the southwestern hemisphere.


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