Topics in Tariffs and Protectionism
Paper Session
Sunday, Jan. 3, 2021 3:45 PM - 5:45 PM (EST)
- Chair: Jim Tybout, Pennsylvania State University
Stockpiling and Avoidance of United States Solar Panel Tariffs
Abstract
This study examines the effects of a series of tariffs imposed on imported solar photovoltaic panels by the United States in 2012, 2014, and 2018. We bring together rich data on household-level solar installations, firm production decisions, and solar imports into the United States. Solar system prices exhibited no response to headline tariff rates in 2012 and 2014. This can be explained by evidence of very substantial avoidance behavior by solar panel manufacturers, including strategic offshoring of final assembly. Complete avoidance of the 2018 tariffs was not possible since tariffs were applied to all foreign-made modules, so we also see evidence of stockpiling behavior. We develop a `strategic tariff’ measure that accommodates tariff avoidance behavior, and we find that that these rates differ substantially from the headline tariff rate. We estimate the effect of the strategic tariff rates on the module prices paid by installers, the composition of manufacturers used by solar installers, the final system prices paid by U.S. consumers, and consumer surplus by U.S. consumers.The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response?
Abstract
In the wake of Brexit and the Trump tariff war, central banks have had to consider the role of monetary policy in managing the macroeconomic effects of severe disruptions to global supply chains. This paper studies the optimal monetary policy responses to a tariff shock using a New Keynesian model that includes elements from the trade literature, including global value chains in production, firm dynamics, and comparative advantage between two traded sectors. We find that, in response to a symmetric tariff war, the optimal policy response is generally expansionary: central banks stabilize the output gap at the expense of further aggravating short-run inflation---contrary to the prescription of the standard Taylor rule. In response to a tariff imposed unilaterally by a trading partner, it is optimal to engineer currency depreciation up to offsetting the effects of tariffs on relative prices, without completely redressing the effects of the tariff on the broader set of macroeconomic aggregates. The lessons learned apply also to other types of shocks that recently have disrupted global supply chains.Anxiety or Pain? The Impact of Tariffs and Uncertainty on Chinese Firms in the Trade War
Abstract
The unexpected outbreak of the U.S.-China trade war led to dramatic increases in the import and export tariffs confronting Chinese firms. Due to firm-level differences in trade engagement, customs trade data combined with tariff changes allow us to measure firm-level exposure to the trade war. Further, by adopting a new textual analysis approach to listed firms' annual reports, we develop trade policy uncertainty (TPU) measures that vary over firms and time. Our difference-in-differences examination of these firm-level data reveals that trade war increases in U.S. tariffs and Chinese retaliatory tariffs both raised Chinese firms’ TPU. The impact of tariffs on uncertainty is heterogeneous, and is most pronounced for smaller and less capital-intensive firms. This effect is also smaller for Chinese exporters that were more diversified in terms of partner countries. In the second stage of our analysis, we explore and document the negative connection between Chinese firm-level increases in TPU and subsequent firm performance. Our estimates indicate that Chinese firms hit by a one standard deviation increase in TPU during the trade war reduced firm-level investment, R&D expenditures, and profits by 1.4, 2.7, and 8.9 percent, respectively.Heterogeneous Impacts of the Section 301 Tariffs: Evidence from the Revision of Product Lists
Abstract
In each of the three waves of the Section 301 tariffs on Chinese imports, some products on the original list were exempted from additional duties. Using these exempted products as the counterfactual, we identify modest but heterogeneous impacts of the tariffs on the value of US imports from China. The three tranches of tariffs reduced imports from China by 8.9%, 15.7%, and 3.9%, respectively. In addition, US importers were found to purchase forward in anticipation of higher upcoming tariffs. These estimates show a loss of $18.1 billion worth of US imports from China, a 3.6% reduction in the total US imports from China. Unlike previous studies, we find limited tariff pass-through of the third wave of tariffs, largely driven by reduced prices of consumer goods. Furthermore, we estimate larger price reduction for homogeneous goods, goods with higher distribution margin, lower sectoral concentration, or more competition from third countries. We find that the tariffs led to asymmetric trade diversion effects for US and China. The US barely make up the loss in imported Chinese goods by purchasing more from alternative origins. In contrast, an analysis of the Chinese export data shows that China responded to the tariffs by selling more to other destinations. The asymmetry in trade diversion is consistent with the relocation of supply chains from the US to Europe and other parts of North America. Some of our findings also indicate the possibility of "roundabout exports" from China to US via Vietnam and Taiwan.The Impact of NAFTA on Prices and Competition: Evidence from Mexican Manufacturing Plants
Abstract
This paper assesses the impact of the North American Free Trade Agreement on Mexican manufacturing plants' prices and markups. To do so, we rely on a confidential dataset from Mexican manufacturing plants that includes disaggregated plant-product-level data for the period 1994-2008. We distinguish between Mexican goods that are exported and those sold domestically, and decompose their prices separately into markups and marginal costs following the approach of De Loecker, Goldberg, Khandelwal, and Pavcnik (2016). This method estimates production functions to identify markups from the wedge between the output elasticity of a variable input and its expenditure share out of total revenue and does not require any assumptions about market structures or consumer preferences. We then analyze how these components were affected by reductions in Mexican output tariffs, intermediate input tariffs, and U.S. tariffs. We find that declines in these tariffs led to significant reductions in the marginal costs of Mexican products. However, prices of exported goods slightly increased as exporters increased their markups in response to declines in U.S. tariffs.JEL Classifications
- F1 - Trade