Search Results
Working Paper
International Trade of Essential Goods During a Pandemic
This paper studies the role of international trade of essential goods during a pandemic. We consider a multi-country, multi-sector model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level. Each country produces domestic varieties of both types of goods using capital and labor subject to sectoral adjustment costs, and all varieties are traded internationally subject to trade barriers. We study the role of international trade of essential goods in mitigating or ...
Discussion Paper
Who Pays the Tax on Imports from China?
Tariffs are a form of taxation. Indeed, before the 1920s, tariffs (or customs duties) were typically the largest source of funding for the U.S. government. Of little interest for decades, tariffs are again becoming relevant, given the substantial increase in the rates charged on imports from China. U.S. businesses and consumers are shielded from the higher tariffs to the extent that Chinese firms lower the dollar prices they charge. U.S. import price data, however, indicate that prices on goods from China have so far not fallen. As a result, U.S. wholesalers, retailers, manufacturers, and ...
Working Paper
Why is Trade Not Free? A Revealed Preference Approach
A prominent explanation for why trade is not free is politicians’ desire to protect some of their constituents at the expense of others. In this paper we develop a methodology that can be used to reveal the welfare weights that a nation’s import tariffs implicitly place on different groups of society. Applied in the context of the United States in 2017, this method implies that redistributive trade protection accounts for a significant fraction of US tariff variation and causes large monetary transfers between US individuals, mostly driven by differences in welfare weights across sectors ...
Working Paper
The Macroeconomic Effects of Trade Policy
We study the short-run macroeconomic effects of trade policies that are equivalent in a friction-less economy, namely a uniform increase in import tariffs and export subsidies (IX), an increase in value-added taxes accompanied by a payroll tax reduction (VP), and a border adjustment of corporate pro.t taxes (BAT). Using a dynamic New Keynesian open-economy framework, we summarize conditions for exact neutrality and equivalence of these policies. Neutrality requires the real exchange rate to appreciate enough to fully offset the effects of the policies on net exports. We argue that a ...
Working Paper
International Trade Policy During a Pandemic
This paper studies international trade policy during a pandemic. We consider a multi-sector small open economy model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level along with higher import and export prices of these goods. The economy produces domestic varieties of both types of goods subject to sectoral adjustment costs, and varieties are traded internationally subject to trade barriers. We find that trade provides limited relief to the increased demand for ...
Report
Uncertainty about Trade Policy Uncertainty
We revisit in this note the macroeconomic impact of the recent rise in trade policy uncertainty. As in the literature, we do find that high trade policy uncertainty can adversely impact domestic and foreign economic activity. In addition, we identify an alternative business sentiment channel that is separate and distinct from the impact of trade policy uncertainty, which provides a complementary explanation of the recent developments in the U.S. and global economic activities. This sentiment channel also implies that subsiding trade policy uncertainty does not necessarily result in a recovery ...
Briefing
How Does Trade Policy Get Decided?
The interests of districts play a crucial role in trade policymaking. Districts with heterogenous political and economic preferences form coalitions and bargain in the legislature to reach an acceptable trade policy. Such complicated process has been overlooked in canonical political economy models of trade. Our work brings to focus the role districts play in the political process by proposing a model that aggregates heterogeneous district preferences into a national trade policy. The approach uncovers districts and sectors that are more influential in the political process and identifies ...
Working Paper
Technology, Geography, and Trade over Time: The Dynamic Effects of Changing Trade Policy
I study the dynamic effects of changes in trade policy in a multi-country model with firms that make durable and destination-specific investments in exporting capacity. Using Mexican exporter-level data, I show that incumbent exporters to minor trade partners account for a smaller share of bilateral exports than do incumbent exporters to major trade partners, indicating a systematic difference in the persistence of the export decision across destinations. The model is calibrated to capture the positive relationship between exporting persistence and export volume, and predicts that trade ...
Working Paper
Tariffs and Goods-Market Search Frictions
We study uniform tariffs in a general equilibrium dynamic model with search frictions between heterogeneous exporting producers and importing retailers. We analytically characterize unilateral import tariffs that maximize domestic welfare. Search frictions lower these tariffs because of market thickness effects, which reinforce aggregate production nonconvexities. A calibration using 2016 U.S. and Chinese data suggests that optimal U.S. unilateral and Nash equilibrium tariffs with baseline search frictions are 10 ppt. below those in a model with reduced search frictions. Changes in welfare in ...
Working Paper
Trade policies and fiscal devaluations
Fiscal devaluations—an increase in import tariffs and export subsidies (IX) or an increase in value-added taxes and payroll subsidies (VP)—have been shown to provide as much stimulus under fixed exchange rates as a currency devaluation. We find that if agents expect policies to be reversed and the tax pass-through is large, VP is contractionary and IX provides a modest boost. In our medium-scale DSGE model, both features are crucial in accounting for Germany’s underperformance in response to VP in 2007. These findings cast doubt on fiscal devaluations as a cyclical stabilization tool ...