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1. Tariffs and Monetary Policy: A Toxic Mix

Author:
Michael D Bordo and Mickey D. Levy
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The ratcheting up of tariffs and the Fed’s discretionary conduct of monetary policy are a toxic mix for economic performance. Escalating tariffs and President Trump’s erratic and unpredictable trade policy and threats are harming global economic performance, distorting monetary policy, and undermining the Fed’s credibility and independence. President Trump’s objectives to force China to open access to its markets for international trade, reduce capital controls, modify unfair treatment of intellectual property, and address cybersecurity issues and other U.S. national security issues are laudable goals with sizable benefits. However, the costs of escalating tariffs are mounting, and the tactic of relying exclusively on barriers to trade and protectionism is misguided and potentially dangerous. The economic costs to the United States so far have been relatively modest, dampening exports, industrial production, and business investment. However, the tariffs and policy uncertainties have had a significantly larger impact on China, accentuating its structural economic slowdown, and are disrupting and distorting global supply chains. This is harming other nations that have significant exposure to international trade and investment overseas, particularly Japan, South Korea, and Germany. As a result, global trade volumes and industrial production are falling. Weaker global growth is reflected in a combination of a reduction in aggregate demand and constraints on aggregate supply.
Topic:
International Trade and Finance, Monetary Policy, Economic growth, Tariffs, and Industry
Political Geography:
Japan, China, Europe, Asia, South Korea, Germany, North America, and United States of America

2. Does Home (Output) Import Tariff Reduction Increase Home Exports? Evidence from Korean Manufacturing Plant–Product Data

Author:
Chin Hee Hahn and Ju Hyun Pyun
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study examines the effects of domestic output import tariff reduction on domestic plant export dynamics and clarifies the underlying mechanism, using rich plant–product data from the Republic of Korea for 1991–2002. We find that home import liberalisation increases domestic plants’ export market participation (extensive margins), particularly for industry where markup growth is more negative during tariff reductions. However, we do not find evidence that cutting import tariffs significantly affects incumbent home exporters’ export volume (intensive margins). This study unveils a new mechanism – ‘escape competition’ to foreign markets – by showing that reducing import tariffs leads domestic firms under heightened industry competition to look for an opportunity in foreign markets via export inauguration.
Topic:
Markets, Tariffs, and Imports
Political Geography:
Asia and South Korea

3. Learning-to-Export Effect as a Response to Export Opportunities: Micro-Evidence from Korean Manufacturing

Author:
Chin Hee Hahn and Yong-Seok Choi
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This paper aims to investigate whether empirical evidence supports the learning-to-export hypothesis, which has received little attention in the previous literature. By taking full advantage of plant–product level data from the Republic of Korea during 1990–1998, we find some evidence for the learning-to-export effect, especially for innovated product varieties with delayed exporters: their productivity, together with research and development and investment activity, was superior to their matched sample. On the other hand, this learning-to-export effect was not significantly pronounced for the industries protected by import tariffs. Thus, our empirical findings suggest that it would be desirable to implement some policy tools to promote the learning-to-export effect, while tariff protection cannot be justifiable for that purpose.
Topic:
Industrial Policy, International Trade and Finance, Tariffs, Manufacturing, and Productivity
Political Geography:
Asia and South Korea