nep-cna New Economics Papers
on China
Issue of 2019‒10‒28
two papers chosen by
Zheng Fang
Ohio State University

  1. Tariffs and Politics: Evidence from Trump’s Trade Wars By Fetzer, Thiemo; Schwarz, Carlo
  2. WTO'ing a Resolution to the China Subsidy Problem By Chad P. Bown; Jennifer A. Hillman

  1. By: Fetzer, Thiemo (University of Warwick and CAGE, Department of Economics); Schwarz, Carlo (University of Warwick and CAGE, Department of Economics)
    Abstract: We use the recent trade escalation between the US,China, the European Union (EU), Canada and Mexico to study whether retaliatory tariffs are politically targeted. Using aggregate and individual-level data we find evidence that the retaliatory tariffs disproportionally targeted areas that swung to Trump in 2016, but not to other Republican candidates. We propose a novel simulation approach to construct counterfactual retaliation responses. This allows us to both quantify the extent of political targeting and assess the general feasibility. Further, the counterfactual retaliation responses allow us to shed light on the potential trade-offs between achieving a high degree of political targeting and managing the risks to ones own economy. China, while being constrained in its retaliation design, appears to put large weight on achieving maximal political targeting. The EU seems successful in maximizing the degree of political targeting, while at the same time minimizing the potential damage to its own economy and consumers.
    Keywords: trade war ; tariff ; targeting ; political economy ; elections ; populism
    JEL: F13 F14 F16 F55 D72
    Date: 2019
  2. By: Chad P. Bown (Peterson Institute for International Economics); Jennifer A. Hillman (Georgetown University Law Center)
    Abstract: The United States, 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 begins by providing a brief history of subsidy disciplines in the General Agreement on Tariffs and Trade (GATT) 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 (ASCM) 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 (OECD) 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.
    Keywords: WTO, subsidy, state-owned enterprise, dispute settlement
    JEL: F13
    Date: 2019–10

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