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1. To what extent are tariffs offset by exchange rates?

Author:
Olivier Jeanne
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In theory, tariffs are partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. Based on a calibrated model, this paper finds that US tariffs imposed in 2018 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. Tariff-related news explains about one-third of the renminbi depreciation observed in 2018.
Topic:
Economics, Tariffs, Exchange Rate Policy, and Currency
Political Geography:
North America and United States of America

2. 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

3. The U.S.-China Trade War: Is There an End in Sight?

Author:
Simon Lester and Huan Zhu
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Donald Trump was a trade “hawk” long before he became president. In the late 1980s, he went on the Oprah Winfrey show and complained about Japan “beating the hell out of this country” on trade (Real Clear Politics 2019). As president, he has continued with the same rhetoric, using it against a wide range of U.S. trading partners, and he has followed it up with action (often in the form of tariffs). While many countries have found themselves threatened by Trump’s aggressive trade policy, his main focus has been China. As a result, the United States and China have been engaged in an escalating tariff, trade, and national security conflict since July 2018, when the first set of U.S. tariffs on China went into effect and China retaliated with tariffs of its own. In this article, we explore the U.S.-China economic conflict, from its origins to the trade war as it stands today. We then offer our thoughts on where this conflict is heading and when it might end.
Topic:
Economics, International Trade and Finance, Tariffs, Trade Wars, and Donald Trump
Political Geography:
China, Asia, North America, and United States of America

4. 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

5. Input Allocation Behaviour on Tariff Changes: The Case of Indonesia’s Manufacturing Industries

Author:
Samuel Nursamsu, Dionisius Narjoko, and Titik Anas
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Can firms reallocate their imported inputs to domestic sources when faced with import tariffs? To answer this question, we analyse the input allocation behaviour of Indonesian medium and large-sized manufacturing firms in responding to the movement of import tariffs from 2000 to 2013 by utilising plant-level input data of Indonesian manufacturing. We find that an increase in tariffs only creates a weak substitution effect. Our findings indicate that firms reallocate their inputs towards domestic sources, although this is accompanied by a decrease in the firms’ value added. This implies that domestic inputs are worse substitutes for imported inputs and that firms’ capacity to switch over to domestic products is limited, suggesting that firms will immediately switch back to importing when the tariff is removed. We find no evidence that firms make any adjustment towards more domestic-oriented input composition over time; and heterogeneity exists within the result, as industries with a strong basis in the domestic market are more capable of adjusting.
Topic:
Industrial Policy, International Trade and Finance, Tariffs, and Manufacturing
Political Geography:
Indonesia and Asia

6. 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

7. WTO'ing a Resolution to the China Subsidy Problem

Author:
Chad P. Bown and Jennifer A. Hillman
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The United States, the European Union, and Japan have begun a trilateral process to confront the Chinese economic model, including its use of industrial subsidies and deployment of state-owned enterprises. This paper seeks to identify the main areas of tension and to assess the legal-economic challenges to constructing new rules to address the underlying conflict. It first provides a brief history of subsidy disciplines in the General Agreement on Tariffs and Trade and the World Trade Organization (WTO) predating any concerns introduced by China. It then describes contemporary economic problems with China’s approach to subsidies, their impact, and the apparent ineffectiveness of the WTO’s Agreement on Subsidies and Countervailing Measures to address them. Finally, it calls for increased efforts to measure and pinpoint the source of the problems—in a manner analogous to how the Organization for Economic Cooperation and Development took on agricultural subsidies in the 1980s—before providing a legal-economic assessment of proposals for reforms to notifications, evidence, remedies, enforcement, and the definition of a subsidy.
Topic:
Economics, World Trade Organization, Tariffs, and Trade
Political Geography:
Japan, Europe, Asia, North America, United States of America, and European Union

8. Assessing President Trump’s Trade Priorities

Author:
Daniel Griswold
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
President Trump has delivered on his promise to shake up Washington, arguably nowhere more so than in the policy space of international trade. President Trump’s trade agenda has challenged more than seven decades of bipartisan policy commitment to seeking lower trade barriers at home and abroad through negotiated agreements. While President Trump pays lip service to pursuing free trade and eliminating tariffs, his trade policies so far have been marked by higher U.S. duties on a range of products, from washing machines to steel. Under Section 301 of the Trade Act of 1974, the administration has imposed duties on $250 billion of imports from China, with those duties set to escalate in 2019 absent an agreement with China. And under Section 232 of the Trade Expansion Act of 1962, the president is threatening to impose a 25 percent duty on imported automobiles in the name of national security. The Trump administration has renegotiated existing trade agreements with Canada, Mexico, and South Korea, but its modifications are as likely to restrict trade as expand it. One of the president’s first actions after assuming office was to withdraw the United States from the pending Trans-Pacific Partnership, which would have eliminated almost all duties with 11 trading partners around the Pacific Rim, including Japan.
Topic:
Economy, Tariffs, Trade, and Donald Trump
Political Geography:
North America and United States of America

9. Agricultural trade aid: Implications and consequences for US global trade relationships in the context of the World Trade Organization

Author:
Joseph W. Glauber
Publication Date:
11-2019
Content Type:
Special Report
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
In retaliation for adverse trade actions from the Trump administration against foreign imports, many countries have imposed tariffs on US agricultural exports. To shore up political support from an important constituency, the Trump administration has authorized an estimated total of $28 billion in 2018 and 2019 to farmers and ranchers in compensation packages for their losses in those years. This report uses estimates of the distribution and size of the 2018 and 2019 trade aid packages to evaluate how these programs will affect World Trade Organization domestic support limits and their potential consequences for US trade relations.
Topic:
Agriculture, Humanitarian Aid, World Trade Organization, Tariffs, and Trade
Political Geography:
Global Focus and United States of America

10. The Impact of Intranational Trade Barriers on Exports: Evidence from a Nationwide VAT Rebate Reform in China

Author:
Jie Bai and Jiahua Liu
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
It is well known that various forms of non-tariff trade barriers exist within a country. Empirically, it is difficult to measure these barriers as they can take many forms. We take advantage of a nationwide VAT rebate policy reform in China as a natural experiment to identify the existence of these intranational barriers due to local protectionism and study the impact on exports and exporting firms. As a result of shifting tax rebate burden, the reform leads to a greater incentive of the provincial governments to block the domestic flow of non-local goods to local export intermediaries. We develop an open-economy heterogenous firm model that incorporates multiple domestic regions and multiple exporting technologies, including the intermediary sector. Consistent with the model’s predictions, we find that rising local protectionism leads to a reduction in interprovincial trade, more “inward-looking” sourcing behavior of local intermediaries, and a reduction in manufacturing exports. Analysis using micro firm-level data further shows that private companies with greater baseline reliance on export intermediaries are more adversely affected.
Topic:
International Trade and Finance, Political Economy, Reform, and Tariffs
Political Geography:
China and Asia