Trade Policy
Lightning Round SessionTuesday, Jan. 5, 2027 1:00 PM - 3:00 PM (EST)
- Chair: Angela Qin, George Washington University
How Protectionist Measures Shape the Offshoring Strategies of Chinese Firms: Evidence and Trade Implications
Abstract
Research on MNE spillovers centers on investments from advanced economies, with limited evidence on how emerging-market outward FDI affects host economies under policy shocks. Focusing on export controls, we combine product-level trade policy data from Global Trade Alert with greenfield FDI data from Orbis Crossborder Investment to examine how controls targeting China reshape its global investment patterns and production structures.First, we document two stylized facts: (1) while import barriers are not new, most Chinese industries were first exposed to export controls beginning in 2018, with such controls disproportionately targeting strategic sectors; and (2) following 2018, Chinese outward FDI became increasingly concentrated in these strategic industries.
Second, exploiting the staggered implementation of export restrictions across industries in a difference-in-differences framework, we find that once an industry is subject to export controls, Chinese outward FDI in that sector increases by roughly 60–70 percent relative to unaffected industries, with persistent effects. The responses are strongest in connector economies that provide alternative market access or production platforms, suggesting that firms strategically reallocate investment to mitigate policy constraints.
Third, we show that industries receiving export control–induced Chinese FDI experience shifts in import composition from both China and the United States toward capital equipment and production-critical inputs. The shifts in imports from China are particularly pronounced in cost-competitive emerging economies serving as relocation hubs, while no comparable pattern is observed for imports from other countries (e.g., India). These findings are consistent with Chinese firms relocating production overseas and expanding local production capacity. Taken together, the results demonstrate that export controls reorganize multinational investment and host-country production, generating previously overlooked cross-border spillovers.
Firm Lobbying and Investment Under Trade Policy Uncertainty
Abstract
We examine how lobbying can mitigate firms' exposure to future tariff threats in the midst of trade policy uncertainty (TPU). We build a structural model where in a given period, firms decide whether or not to pay a fixed cost to enter into lobbying and/or sunk cost to upgrade productivity. The cost of lobbying is heterogeneous across firms based on prior lobbying experience. TPU affects the investment decision by generating an option value of waiting, and lobbying moderates this relationship by lowering future tariff threats. The model predicts that firms with prior lobbying experience and/or higher productivity are more likely to lobby and invest in the current period. We plan to structurally estimate key model parameters such as the hidden costs of lobbying using data from the period leading up to the 2018 U.S.-China trade war when TPU increased, but tariff threats were yet to be realized. Finally, we plan to run two counterfactuals that isolate distinct channels through which political access shapes investment under TPU. First, a setting in which no firm has prior lobbying experience, where the difference from the baseline will reflect the contribution of firms’ lobbying histories to their investment behavior. Second, a setting in which current-period lobbying is assigned at random; this severs the link between lobbying and productivity, so the difference from the baseline reflects how much of the observed investment gap between lobbying and non-lobbying firms arises from selection rather than a causal effect of access.The Lucas Paradox: Political Turnover and Outward Foreign Direct Investment
Abstract
Why does capital from emerging economies persistently flow toward developed markets despite superior returns at home? This paper examines the role of domestic political turnover in shaping cross-border capital allocation, offering a governance-based explanation to Lucas ParadoxI develop and test a connection-driven reallocation channel. When a new provincial governor assumes office, existing patronage networks are disrupted, leading to tighter credit conditions and regulatory constraints for previously connected firms. In response, politically exposed private firms reallocate capital abroad, seeking more stable institutional environments rather than competing for politically allocated domestic resources. Outward foreign direct investment(ODI) thus reflects a strategic response to domestic political volatility rather than a response to return differentials.
This mechanism generates testable predictions that distinguish it from a pure uncertainty channel. While uncertainty would suppress investment broadly, a reallocation channel redirects investment toward foreign markets. Accordingly, new leader appointments should increase cross-border ODI while leaving within-province investment unchanged, with effects concentrated among private firms that lack the political capital insulating state-owned enterprises.
Using province-year panel data and over 26,000 deal-level M&A transactions across China’s 31 provinces from 2003 to 2022, I exploit variation in the timing of provincial governor successions. I find that new appointments significantly increase outward investment—particularly ODI—over a one- to three-year horizon, while within-province investment remains statistically unchanged. At the deal level, political turnover increases the probability and value of cross-border transactions by more than 16 percent. Private-owned firms respond nearly twice as strongly as state-owned enterprises, and firms with stronger biographical ties to outgoing governors exhibit the largest outward reallocation.
These findings suggest that emerging-market multinational expansion reflects not only growth opportunities, but also a response to domestic political risk, with implications for how host economies interpret inbound capital and for theories of the multinational firm.
When Two Quarrel, the Third Rejoices: Windfall FDI and the Early Winners of the Russian-Ukrainian War
Abstract
Geopolitical conflicts reshape global investment patterns, potentially creating unexpected economic opportunities. Using the Russian invasion of Ukraine as a quasi-exogenous shock, this paper examines how major geopolitical events fragment and redirect crossborder investment and estimates the associated economic consequences for bloc-free countries. Employing a Difference-in-Differences framework, I document a redirection of foreign direct investment flows, in particular in the manufacturing sector, from geopolitical distant blocs into bloc-free countries. A small group of bloc-free countries, namely Mexico, India, Vietnam, and Brazil, attract a disproportionate share of the Windfall FDI due to their large domestic markets, strong manufacturing bases, and access to both Western and Eastern markets. These Windfall FDI inflows increased real GDP in recipient countries by 0.1% on average, highlighting the economic gains associated with geopolitical neutrality.“Preferential” Trade Agreements?
Abstract
Preferential trade agreements (PTAs) are designed to grant member countries tariff advantages over most-favored-nation (MFN) rates, yet these preferences often fail to materialize in practice. In many agreements, tariffs are phased out gradually from the MFN baseline prevailing at the time of negotiation. However, governments may subsequently reduce MFN tariffs unilaterally. When such reductions fall below the scheduled preferential tariff path, MFN rates can undercut preferential rates, temporarily eliminating the intended tariff advantage. Positive preference margins are only restored as implementation of the agreement progresses. We document that this mechanism is widespread: half of the 356 PTAs notified to the WTO do not adjust preferential rates in response to changes in MFN tariffs. Using transaction-level import data from Colombia during the implementation of its PTAs with the United States and the EU, we find that 35% of imports from the United States and 45% from the EU that were expected to benefit from the agreements did not receive effective preferences in the initial phase of implementation due to unilateral MFN reductions. We use a triple-difference framework to compare imports in products with zero or negative preference margins to imports of the same products from the rest of the world. We find that imports in affected products decline following PTA implementation. For example, in products where preferences were effectively absent, U.S. imports were, on average, 34% lower than comparable imports from other countries. We show that the core assumption that PTAs offer lower, preferential rates often does not hold in practice. Thus, our findings have important implications for how the gains from PTAs are measured and for the political economy of preferential trade liberalization.Fast and Furious: Daily Export Responses to the Liberation Day Tariff Shock
Abstract
How rapidly can firms re-time international shipments when faced with sudden changes in trade policy? We provide new evidence on this high-frequency adjustment margin using the United States' Liberation Day tariffs (LDT) as an unexpected policy shock, together with confidential daily customs data from Thailand. Our identification strategy exploits a novel shift--share exposure measure, the "LDT gap," which captures product-level variation at the HS6 level in relative tariff increases faced by Thai exporters. We find that exporters adjust within days: products with higher LDT gaps experience increases in export values and quantities, with no statistically significant change in export prices, and these responses are mainly concentrated in the announcement period. The effects are stronger for agricultural than for manufacturing products. Across product use categories, the strongest responses are observed among consumer goods. The paper provides the first daily-frequency evidence on rapid shipment reallocation under sudden policy shocks and introduces a transparent exposure measure for identifying heterogeneous effects.The Heterogeneous Impact of the 2018-2019 Trade War on U.S. Prices and Welfare
Abstract
A puzzling finding from the 2018-2019 trade war is that U.S. tariffs seemingly failed to lower exporters' prices. I show that affected import prices declined before tariff implementation and that never-tariffed Chinese imports were exposed to tariff announcements, undermining difference-in-differences identification based on implementation dates. Addressing these issues, I estimate that U.S. tariffs reduced value-weighted pre-tariff import prices by 6.9% by December 2019 with 58% passthrough, resulting in a terms-of-trade gain for the U.S. I further document lower tariff passthrough for products where the U.S. accounted for larger shares of exporters' markets, closely matching theoretical predictions.The Impact of Non-Tariff Trade Measures on Labor Outcomes: Lessons from the U.S.-China Trade War
Abstract
Trade tensions between the U.S. and China have generated significant economic consequences, with agriculture proving especially vulnerable to Chinese retaliation. While a large body of literature examines the effects of the 2018 U.S.-China trade war on trade flows, prices, welfare, and labor markets, most studies focus exclusively on tariffs. This approach risks understating the true scope of trade disruption, as non-tariff measures (NTMs) are less transparent, harder to quantify, and often implemented in ways that leave no clear paper trail. Chen et al.(2022) show that Chinese NTMs accounted for nearly half the decline in U.S. exports to China during the trade war, and the post-2020 recovery in U.S. agricultural import shares following the Phase One agreement further suggests that China relied heavily on policy instruments beyond tariffs to shape trade outcomes.This paper examines how Chinese NTMs affected U.S. agricultural labor markets during the 2018 trade war. NTMs have been applied disproportionately to agricultural products, with China a particularly prominent user of such measures, making agriculture the natural sector in which to study their labor-market consequences. We extend the framework of Autor et al. (2024) by constructing industry-level exposure measures that incorporate both Chinese retaliatory tariffs and the ad valorem equivalents (AVEs) of Chinese NTMs, estimated following Chen et al.(2022). This allows us to compare the effects of tariffs and NTMs directly and assess their combined impact on county-level agricultural employment.
Our contributions are threefold. First, we provide policy-relevant evidence that NTMs, often overlooked relative to tariffs, can have substantial labor market consequences. Second, we propose an empirical framework for estimating discriminatory bilateral AVEs using time variation in a gravity model, applicable to other trade contexts where NTM data are limited. Third, we offer a more disaggregated, agriculture-centered analysis by adopting the labor imputation approach of Charlton et al. (2025).
Wait or Relocate? Option Value versus Hold-up under Trade Policy Uncertainty
Abstract
Standard real-options frameworks predict that trade policy uncertainty (TPU) deters entry but cannot trigger incumbent exit from established sourcing relationships. This paper resolves this puzzle by introducing incomplete contracting into a global sourcing model. As TPU rises, contractibility deteriorates, amplifying the hold-up problem on relationship-specific investments. This friction generates a profit loss that scales with firm productivity, ultimately overwhelming the fixed option value of waiting and inducing the most productive firms to exit.Extending this model to a task-based framework reveals that relocation destinations depend on a trade-off between production costs and institutional quality. Using product-level U.S. import data from the 2016–2019 trade war, I find that news-based TPU significantly reduces U.S. imports from China after controlling the tariffs. Crucially, the direction of relocation diverges by contract intensity. Low-contract-intensity products diversify toward low-wage countries, such as Vietnam and Mexico, driven by cost minimization. Conversely, high-contract-intensity products, which rely on strong contractual enforcement, reshore to the United States. Products of intermediate intensity remain largely unaffected.
JEL Classifications
- F1 - Trade