Where it was made

Kevin Lewis

December 21, 2016

A Note on the Effect of Rising Trade Exposure on the 2016 Presidential Election

David Autor et al.

MIT Working Paper, November 2016

"This research note examines whether the exposure of local labor markets to increased import competition from China effected voting in the U.S. presidential election in 2016. It relates the change in the county-level Republican two-party vote share between 2000 and 2016 to the growth in local labor markets' exposure to Chinese import penetration. We find a robust positive effect of rising import competition on Republican vote share gains. The magnitude of the Republican gains is non-trivial. A counterfactual study of closely contested states suggests that Michigan, Wisconsin, Pennsylvania and North Carolina would have elected the Democrat instead of the Republican candidate if, ceteris paribus, the growth in Chinese import penetration had been 50 percent lower than the actual growth during the period of analysis. The Democrat candidate would also have obtained a majority in the electoral college in this counterfactual scenario."


Foreign Competition and Domestic Innovation: Evidence from U.S. Patents

David Autor et al.

NBER Working Paper, December 2016

Manufacturing is the locus of U.S. innovation, accounting for more than three quarters of U.S. corporate patents. The rise of import competition from China has represented a major competitive shock to the sector, which in theory could benefit or stifle innovation. In this paper we empirically examine how rising import competition from China has affected U.S. innovation. We confront two empirical challenges in assessing the impact. We map all U.S. utility patents granted by March 2013 to firm-level data using a novel internet-based matching algorithm that corrects for a preponderance of false negatives when using firm names alone. And we contend with the fact that patenting is highly concentrated in certain product categories and that this concentration has been shifting over time. Accounting for secular trends in innovative activities, we find that the impact of the change in import exposure on the change in patents produced is strongly negative. It remains so once we add an extensive set of further industry- and firm-level controls. Rising import exposure also reduces global employment, global sales, and global R&D expenditure at the firm level. It would appear that a simple mechanism in which greater foreign competition induces U.S. manufacturing firms to contract their operations along multiple margins of activity goes a long way toward explaining the response of U.S. innovation to the China trade shock.


Party Competition and the Inter-Industry Structure of US Trade Protection

Su-Hyun Lee

Political Science Research and Methods, forthcoming

Why do some declining industries receive more compensation through protectionist policies than others, even without actively engaging in lobbying? How does the political representation of industries affect their chances for protectionist relief? This paper argues that political parties seek to optimize electoral returns through the strategic allocation of distributive benefits generated by trade barriers. The inter-industry structure of protection is thus explained by the interaction between industries' trade preferences and political characteristics. Using data on protection and subnational employment for US industries and district-level election outcomes in the 1990s, this paper finds that the concentration of industries in competitive constituencies not only increases their chances of receiving higher tariffs, but also magnifies the marginal effect of comparative disadvantage on tariff and nontariff protection.


The Breakdown of Industrial Opposition to Trade: Firms, Product Variety, and Reciprocal Liberalization

Iain Osgood

World Politics, forthcoming

This article documents systematic deviations from standard models of trade politics, each of which has the effect of undermining sustained efforts at coherent industrial opposition to trade. Industries have internal disagreements about liberalization, support for trade liberalization extends bilaterally across borders in the same industry, and comparative disadvantage industries feature convincing expressions of public support for liberalization. These surprising outcomes are explained by a model of trade politics that emphasizes three factors: firm heterogeneity in export performance, product differentiation, and reciprocal liberalization. The author uses a new data set of industry attitudes about fifteen US trade agreements to show that product differentiation is strongly correlated with these outcomes, even conditional on plausible alternatives. The author concludes that public position-taking and lobbying on trade politics have been fundamentally altered by the rise of product variety; trade's opponents and indifferents have been overwhelmed by pro-globalization firms breaking out to support trade on their own.


Effects of the Great Recession on American Attitudes Toward Trade

Edward Mansfield, Diana Mutz & Devon Brackbill

British Journal of Political Science, forthcoming

Did the American public become more protectionist during the Great Recession of 2007-09? If so, why? During this period, many observers expressed concern that rising unemployment would stimulate protectionist pressures. The results of this study indicate that although increased unemployment did not affect the trade preferences of most Americans, individuals working in import-competing industries who lost their jobs during the Great Recession did grow more hostile to trade. However, even greater hostility to trade stemmed from a variety of non-material factors. Increasing ethnocentrism and opposition to involvement in world affairs between 2007 and 2009 help account for growing antipathy toward trade. But most importantly, increasing anxiety that foreign commerce would harm people in the future, even if it had not done so thus far, contributed to mounting opposition to trade among the American public.


WTO Accession and Tariff Evasion

Beata Javorcik & Gaia Narciso

Journal of Development Economics, March 2017, Pages 59-69

This study documents some unintended consequences of the World Trade Organization (WTO) membership by providing evidence on displacement of tariff evasion driven by the WTO accession process. The analysis focuses on the WTO Customs Valuation Agreement (CVA) which limits the discretion of customs officials when it comes to assessing the price of imports. While prior to the WTO accession customs officials are free to use their own judgment or apply minimum or reference prices, after their country joined the WTO they are mandated to accept the invoice price issued by the exporter. If customs officials enjoy discretion with respect to assessing the import price, they may assist importers with tariff evasion in exchange for bribes. Removing such discretion limits their ability to facilitate misrepresentation of import prices. Using data on 15 countries which joined the WTO between 1996 and 2008, we find a positive relationship between underreporting of import prices and the tariff rate, which is expected as the incentive to evade increases with the tariff rate. Importantly, this relationship disappears after a country joins the WTO. This result is consistent with the CVA closing one channel for corrupt behavior. However, we also find that changes to customs valuation procedures induce importers to seek alternative ways of tariff evasion, such as underreporting of quantities and product misclassification. The overall level of evasion remains unchanged.


Trade Liberalization and Mortality: Evidence from U.S. Counties

Justin Pierce & Peter Schott

NBER Working Paper, November 2016

We investigate the impact of a large economic shock on mortality. We find that counties more exposed to a plausibly exogenous trade liberalization exhibit higher rates of suicide and related causes of death, concentrated among whites, especially white males. These trends are consistent with our finding that more-exposed counties experience relative declines in manufacturing employment, a sector in which whites and males are disproportionately employed. We also examine other causes of death that might be related to labor market disruption and find both positive and negative relationships. More-exposed counties, for example, exhibit lower rates of fatal heart attacks.


Trade to Aid: EU's Temporary Tariff Waivers for Flood-hit Pakistan

Juyoung Cheong, Do Won Kwak & Haishan Yuan

Journal of Development Economics, forthcoming

In this paper, we study the effectiveness of the first large-scale unilateral trade concessions as foreign aid for disaster relief, i.e., EU tariff waivers on goods heavily exported by Pakistan, which was severely hit by the 2010 floods. Using a triple-difference approach and a synthetic control approach, we find that the tariff waivers substantially increased Pakistan's exports to the EU. The export hike occurred within a few months after the waivers became effective, and did not significantly depress exports by competing countries. While the export boost brought greater employment opportunities in the tariff-waived industries, we find little evidence that the greater labor demands from trade were particularly beneficial to the areas most affected by the floods. Our findings suggest that trade policy may complement traditional means of foreign aid - but trade concessions alone may be inadequate, as the areas most affected by natural disasters may be poorly targeted.


Don't Cry for Argentina (or Other Sovereign Borrowers): Lessons from a Previous Era of Sovereign Debt Contract Enforcement

Benjamin Remy Chabot & Veronica Santarosa

Federal Reserve Working Paper, July 2016

Recent court rulings effectively barred Argentina from international capital markets until she honored previous sovereign debt contracts. These rulings have been criticized by some in the legal community for possibly harming New York's standing as a preeminent capital market and hindering developing countries' ability to borrow. This article asks whether such criticism is warranted and notes that a similar enforcement mechanism was employed by the London Stock Exchange before World War I to deny sovereign borrowers in breach of their contracts access to international capital markets. The pre-World War I era provides us with clues into how the sovereign debt market could evolve in the wake of the Argentina rulings. In contrast to the dire warnings, capital markets have historically worked well when sovereign borrowers face sanctions. The existence of sanctions gave sovereign borrowers the means to credibly signal their intent to repay. By including contract clauses that made default costly, historical sovereign borrowers of less than pristine reputation were able to signal their good intentions and enjoy the benefits of cheap access to world capital markets.


Does China's trade defy cultural barriers?

Bedassa Tadesse, Roger White & Huang Zhongwen

International Review of Applied Economics, forthcoming

Using annual data for China and 88 trading partners that span the period 1995-2011, we estimate whether cross-societal cultural differences influence China's external trade flows. Our results, obtained from the estimation of a series of multi-level mixed effect random intercepts and coefficients models, indicate that China's aggregate exports and imports are largely unaffected by the cultural distance between China and its trading partners. Examination of disaggregate trade measures and consideration of the underlying dimensions of our composite cultural distance variable produces a largely similar result. Taken collectively, our results suggest that China's trade is less affected by cultural distance than has been reported for other countries in similar studies.


Do International Rulings Have Spillover Effects?: The View from Financial Markets

Jeffrey Kucik & Krzysztof Pelc

World Politics, October 2016, Pages 713-751

How influential are international courts? Can their rulings reach beyond a given case and affect the behavior of countries not party to the dispute? International law is clear on the matter: rulings have no formal authority beyond the case at hand. This tenet is consistent with the incentives of sovereign states wary of delegating too much authority to courts. By contrast, the authors claim that even in the absence of formal authority, the rulings of international courts can affect behavior by mobilizing pro-compliance groups in countries not party to a dispute. They test these beliefs in the context of the World Trade Organization (WTO) through a novel approach. Because WTO rulings have implications for the fortunes of publicly traded firms, they examine whether financial markets bet on there being spillover effects beyond the case at hand. They rely on two quantitative case studies to test for a cross-border and a cross-industry spillover effect: can rulings have effects in countries and on industries other than those at issue in the initial dispute? The results suggest that the answer is a tentative yes. The spillover effects of international rulings may be a matter of scholarly contention, but their existence is something that financial markets appear willing to bet on.

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