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on International Trade |
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Issue of 2025–05–12
twenty papers chosen by Nicola Daniele Coniglio, Università degli Studi di Bari “Aldo Moro” |
| By: | Fabien Rondeau (Crem - Centre de Recherche sur les Médiations - UL - Université de Lorraine); Yushi Yoshida (University of Shiga Prefecture) |
| Abstract: | With internationally fragmented processes of production via global value chains, value-added components of a country's export include the importer's contributions as well as that of exporters. The exchange rate sensitivity of export price reflects these value-added components. We examine the effect of value-added contributions of exporters and importers on the degree of exchange rate pass-through by focusing on the Japanese import prices by industries. Our results show that exchange rate pass-through increases for industries with a higher contribution of exporting countries' value added and for industries with a lower contribution of the importing country's value added. The differentials in value added among industries help explain the dynamics of exchange rate pass-through at the industry level. |
| Keywords: | Exchange rate pass-through, Global value chains, Value added in trade |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05035175 |
| By: | Paolo Pin |
| Abstract: | We develop a model in which country-specific tariffs shape trade flows, prices, and welfare in a global economy with one homogeneous good. Trade flows form a Directed Acyclic Graph (DAG), and tariffs influence not only market outcomes but also the structure of the global trade network. A numerical example illustrates how tariffs may eliminate targeted imports, divert trade flows toward third markets, expose domestic firms to intensified foreign competition abroad, reduce consumer welfare, and ultimately harm the country imposing the tariff. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.04816 |
| By: | Arnaud Costinot; Iván Werning |
| Abstract: | We study the positive (not normative) effect of a permanent import tariff on trade deficits. We consider a two-period trade model with general preferences and technology. We first develop an aggregation result showing one can work with induced preferences over aggregate imports and exports. This simplifies the analysis considerably. Our main result provides a sufficient statistic to evaluate the impact of tariffs around free trade: tariffs reduce trade deficits if the Engel curves for aggregate imports and exports are convex. Convexity is more likely when goods, at the micro-level, shift between being imported, non-traded, or exported. If this extensive margin is inactive and Engel curves are linear, then a permanent tariff is neutral. |
| JEL: | F40 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33709 |
| By: | Xiao Wang; Jun Nagayasu |
| Abstract: | We studied the e!ect of the Russian Unfriendly Countries List (UCL) on the global trade of sanctioned countries. Applying the staggered Di!erence-in-Di!erences in the gravity model to trade data from 48 countries, we found that the UCL has adversely affected sanctioned countries’ trade with Russia but has a null effect on the investigated countries’ trade with Ukraine. Furthermore, we investigated whether UCL leads to trade diversion, that is, whether UCL countries increase their crude oil imports from other primary exporters. |
| Date: | 2025–04–25 |
| URL: | https://d.repec.org/n?u=RePEc:toh:tupdaa:69 |
| By: | George A. Alessandria; Shafaat Yar Khan; Armen Khederlarian; Kim J. Ruhl; Joseph B. Steinberg |
| Abstract: | We study how trade-policy dynamics affect the dynamics of trade volumes and the implications of these effects for estimates of the trade elasticity. We use data on US imports and trade policy from 1974–2017 for China and Vietnam—the countries with the largest import growth and the largest tariff reductions over the last fifty years—and a heterogeneous-firm dynamic trade model to recover the dynamic path of the trade elasticity following an unanticipated, permanent tariff change. We estimate a short-run trade elasticity of about three and a long-run trade elasticity of about 14, and find that it takes about five years to close half of the gap between the current and long-run levels of trade. We argue that the expected dynamics of future trade policy before and after these reforms biases down reduced-form estimates of the long-run trade elasticity and biases up estimates of the short-run elasticity. We argue that these measurement issues are even more problematic for other trade reforms, especially those within the Normal Trade Relations (NTR) regime that constitute the majority of the data. |
| JEL: | F12 F13 F14 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33568 |
| By: | Naudé, Wim (RWTH Aachen University); Cameron, Martin (Trade Advisory Research (Pty) Ltd) |
| Abstract: | In retaliating against Trump’s March 2025 imposition of import tariffs on EU aluminum and steel, the EU’s response should be twofold: one, at the EU level, to apply retaliatory tariffs and negotiations, and two, to support country-level efforts to minimize the impact of tariffs, including external substitution. We point out that the EU does not, however, at present seem to explicitly consider external substitution, i.e. finding alternative export markets. We show why this is an omission, and use the case of the Netherlands to illustrate how to find alternative export markets and how this can bolster the EU’s retaliation effort. Our empirical modelling finds that while most of the Netherlands’ exports to the USA are at low-to-medium risk, a smaller portion is at high risk. For aluminum and steel products, the high-risk products face exports-at-risk of US$ 245 million, much lower than some current estimates. For these, we identify alternative export opportunities outside the USA and EU. The USA’s trade policies could push the Netherlands and the wider EU towards closer economic ties with other global players, potentially weakening the USA’s geopolitical standing. |
| Keywords: | EU, Trump tariffs, USA tariffs, trade wars, export diversification |
| JEL: | F10 F13 F1 F17 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17773 |
| By: | Mattia Longhi; Caterina Morelli |
| Abstract: | This paper examines the impact of China’s panda diplomacy—the practice of loaning giant pandas to foreign countries—on international trade, which prior literature has shown to be responsive to soft power influences. We investigate whether hosting giant pandas strengthens a country’s trade relations with China, particularly in years when a panda cub is born, as these animals serve as symbolic ambassadors that foster diplomatic and economic ties among the countries, while supporting China’s commitment to giant pandas conservation. To explore this, we construct a novel dataset tracking the movement of pandas as part of Chinas diplomatic initiatives and apply an augmented gravity model of trade using both annual and monthly data from UN-Comtrade. Our analysis reveals that countries hosting giant pandas experience a significant increase in exports to China between 5.9% and 7.2% in the year when a panda cub is born. This effect is short-lived, persisting up to four months after the cubs highly publicized 100-day naming ceremony. The impact is concentrated in specific sectors, including food and live animals, crude materials, and machinery. |
| Keywords: | Panda Diplomacy, political relationship, international trade, China, soft power |
| JEL: | F14 F50 P33 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:550 |
| By: | Harald Oberhofer; Zhenyi Wang |
| Abstract: | This paper studies the role of dataset choices for trade policy estimates in structural gravity models. Using twelve publicly available data sources and applying alternative and commonly used dataset restrictions, we obtain 586 estimates for the EU membership trade effects from a standard structural gravity model specification. These estimates are used in a meta-regression analysis to shed light on potential sources for heterogeneity in the obtained EU membership trade effects. The meta study reveals a crucial role of domestic trade flows for the effect size of the EU membership trade effect estimate. The estimated EU trade effect is on average 20 percentage points larger in datasets that include domestic trade flows. The effect size of the EU membership trade effect estimates also vary with the time- and country coverage, across time interval and consecutive year panel data, alternative product classifications, the level of sectoral disaggregation in the data and the use of imports as alternative measure for trade flow. Alternative estimation packages do not significantly alter the effect size of our estimates for the EU membership trade effects. The paper concludes with some recommendations on data source selection and dataset restrictions. |
| Keywords: | trade policy, EU membership trade effects, gravity models, meta study, meta-regression analysis. |
| JEL: | F13 F14 F15 C80 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11823 |
| By: | Federico, Stefano; Hassan, Fadi; Rappoport, Veronica |
| Abstract: | This paper identifies a credit-supply contraction that arises endogenously after trade liberalization. Banks with loan portfolios concentrated in sectors exposed to competition from China face an increase in nonperforming loans after China’s entry into the World Trade Organization. As a result, they reduce the supply of credit to firms, irrespective of the firm’s sector of operation. This cut in credit translates into lower employment, investment, and output. Through this mechanism, the financial channel amplifies the shock to firms already hit by import competition from China and passes it on to firms in sectors expected to expand upon trade liberalization. |
| JEL: | F14 G31 G32 L25 P33 |
| Date: | 2025–04–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127945 |
| By: | James Giesecke; Robert Waschik |
| Abstract: | This paper examines the economic impacts of U.S. tariff increases announced over March-April 2025 using GTAP-FIN, a dynamic global general equilibrium model. We simulate three scenarios: (1) U.S. tariff hikes without retaliation, (2) retaliation by all trading partners except Australia, and (3) retaliation coupled with U.S. fiscal consolidation via tariff revenue. Across all scenarios, U.S. real GDP declines, driven by deep short-run employment losses, long-run capital stock contractions, and persistent allocative efficiency losses. In the no retaliation case, improved U.S. terms of trade raise U.S. real consumption despite output losses. However, this benefit is reversed under retaliation, which lowers U.S. export prices and consumption. Fiscal consolidation amplifies U.S. consumption losses, but mitigates investment declines. Australia is modestly affected, benefiting from improved terms of trade and investment in the retaliation scenarios. For China, heavy tariff exposure results in sustained terms of trade and consumption losses, athough outcomes improve marginally with U.S. fiscal consolidation. Globally, regions most exposed to U.S. tariffs see the sharpest consumption declines, particularly under the no retaliation scenario. The analysis does not capture the heightened investor uncertainty arising from the unclear policy rationale behind the tariffs, suggesting that adverse economic impacts may exceed those estimated in this paper. |
| Keywords: | U.S. tariffs, Trump tariffs, "Liberation Day" tariffs. |
| JEL: | F13 F47 C68 D58 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cop:wpaper:g-352 |
| By: | Matano, Alessia (University of Barcelona); Naticchioni, Paolo (Roma Tre University) |
| Abstract: | This paper investigates the relationship between China’s import competition and the innovation strategies of domestic firms. Using firm level data from Italy spanning 2005-2010 and employing IV fixed effects estimation techniques, we find that the impact of China’s import competition on innovation varies depending on the type of goods imported (intermediate vs. final). Specifically, imports of final goods boost both product and process innovation, while imports of intermediate goods reduce both. Additionally, we extend the analysis to consider the role of unions in moderating these responses. We find that, in unionized firms, imports' impact on innovation is mitigated, specifically to protect workers' employment prospects. |
| Keywords: | unions, product and process innovation, final and intermediate goods, China’s import competition, IV fixed effects estimations |
| JEL: | C33 L25 F14 F60 O30 J50 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17764 |
| By: | Lin, Jesse; Gale, Fred; Johnson, Michael E. |
| Abstract: | Rice is one of the world’s most widely cultivated and consumed crops, and the efficient operation of the rice market is a critical concern for global food security. From 1991 to 2021, the share of rice used for animal feed and industrial use increased from 4.6 to 7.6 percent. Broken rice (a byproduct of milling) is sold at a lower price than full grain rice for direct consumption, animal feed, or for industrial use. From 2020 to 2022, China more than tripled the volume of broken rice imports (largely for use in animal feed) when prices surged in global corn and wheat coupled with low broken rice prices from India. In 2022, India banned exports of broken rice, rice prices rose and China cut imports back to pre-2021 levels. A potential exists that increased demand for broken rice for feed and industrial use could affect importing countries that depend on broken rice for food. The report authors did not find this potential to be the case in 2021–22. They examined recent broken rice trade fluctuations in detail and analyzed related shifts in rice policy and consumer preferences, based on multiple sources of trade data. |
| Keywords: | Crop Production/Industries, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, International Relations/Trade, Livestock Production/Industries |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:ags:uersib:356607 |
| By: | Elisabeth Kempf; Mancy Luo; Margarita Tsoutsoura |
| Abstract: | We examine how the political ideology of corporate leaders shapes cross-border firm networks. Exploiting changes in ideological alignment between U.S. firm CEOs and foreign governments around close foreign elections, we show that U.S. firms are more likely to terminate trade relationships with countries led by governments whose ideology becomes more distant from that of their CEOs. The impact is concentrated among CEOs holding strong political views, and is particularly pronounced for shorter trade relationships, suggesting ideological alignment is more relevant in more flexible and substitutable connections. Our findings highlight the role of ideology in shaping the formation and persistence of international firm networks. |
| JEL: | F1 G41 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33712 |
| By: | David Baqaee; Hannes Malmberg |
| Abstract: | This short note shows that accounting for capital adjustment is critical when analyzing the long-run effects of trade wars on real wages and consumption. The reason is that trade wars increase the relative price between investment goods and labor by taxing imported investment goods and their inputs. This price shift depresses capital demand, shrinks the long-run capital stock, and pushes down consumption and real wages compared to scenarios when capital is fixed. We illustrate this mechanism by studying recent US tariffs using a dynamic quantitative trade model. When the capital stock is allowed to adjust, long-run consumption and wage responses are both larger and more negative. With capital adjustment, U.S. consumption can fall by 2.6%, compared to 0.6% when capital is held fixed, as in a static model. That is, capital stock adjustment emerges as a dominant driver of long-run outcomes, more important than the standard mechanisms from static trade models — terms-of-trade effects and misallocation of production across countries. |
| JEL: | F0 F1 F30 F40 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33702 |
| By: | Liu, Lang; Plouffe, Michael (University College London) |
| Abstract: | Both foreign direct investment (FD) and special economic zones (SEZs) lie at the heart of the Chinese economic growth project. Research on this topic has largely debated the bidirectional causal relationship between FDI inflows and growth or described the mixed effects of FDI on economic and social development, both at the national level. However the link between inbound FDI and SEZ economic growth itself has bee ignored. Using an original panel dataset covering 19 Chinese SEZs (and SEZ-like zones) over 1996-2017, we explore the link between FDI and regional economic growth using a series of econometric models. We also examine the impact of the 2008 financial crisis on this relationship. Our results indicate a significant positive effect of inbound FDI on economic growth in SEZs. Following the 2008 crisis, the effect of FDI inflows on economic growth was reduced, pointing to the possibility of a lasting reduction in the relationship between the two as a result of the crisis. Finally, we identify the implications of our results for promoting sustainable economic development in SEZs, as well as potential points for reform in Chinese FDI policies more broadly. |
| Date: | 2025–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:nxv6a_v1 |
| By: | Michael Koch; Antonella Nocco |
| Abstract: | This paper introduces a novel mechanism by emphasizing benefits for firms through participation in buyer networks among firms that source the same locally produced inputs. In a first step, we utilize register-based data from Denmark to generate a firm-specific buyer network variable which relies on firms’ industrial input structures and imports. Utilizing this proxy we provide evidence of cost savings from network participation, as larger buyer networks reduce firms’ input demand. Subsequently, we develop a trade model incorporating vertical linkages and introduce network effects that result in savings in intermediate costs. Our theory posits that the magnitude of these savings may be associated with the effectiveness of knowledge transmission among network participants. Consequently, firms operating in regions with efficient knowledge transmission networks may realize greater savings in intermediate input costs, leading to increased profits from local and export sales. In a last step, we provide empirical evidence supporting our theoretical predictions by demonstrating the positive impact of buyer networks based on relationship-specific products on domestic firm revenues. |
| Keywords: | new trade theory, vertical linkages, network effects. |
| JEL: | F12 F15 R12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_117815 |
| By: | Rafael Dix-Carneiro (Duke University); Pinelopi Koujianou Goldberg (Yale University); Costas Meghir (Yale University); Gabriel Ulyssea (University College London) |
| Abstract: | We examine the effects of international trade in the presence of a set of domestic distortions giving rise to informality, a prevalent phenomenon in developing countries. In our quantitative model, the informal sector arises from burdensome taxes and regulations that are imperfectly enforced by the government. In equilibrium, smaller, less productive firms face fewer distortions than larger, more productive ones, potentially leading to substantial misallocation. We show that in settings with a large informal sector, the gains from trade are significantly amplified, as reductions in trade barriers imply a reallocation of resources from initially less distorted to more distorted firms. We confirm findings from earlier reduced-form studies that the informal sector mitigates the impact of negative labor demand shocks on unemployment. Nonetheless, the informal sector can exacerbate the adverse real income effects of economic downturns, amplifying misallocation. Last, our research sheds light on the relationship between trade openness and cross-firm wage inequality. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2384r1 |
| By: | Ṣebnem Kalemli-Özcan; Can Soylu; Muhammed A. Yildirim |
| Abstract: | We develop a novel framework to study the interaction between monetary policy and trade. Our New Keynesian open economy model incorporates international production networks, sectoral heterogeneity in price rigidities, and trade distortions. We decompose the general equilibrium response to trade shocks into distinct channels that account for demand shifts, policy effects, exchange rate adjustments, expectations, price stickiness, and input–output linkages. Tariffs act simultaneously as demand and supply shocks, leading to endogenous fragmentation through changes in trade and production network linkages. We show that the net impact of tariffs on domestic inflation, output, employment, and the dollar depends on the endogenous monetary policy response in both the tariff-imposing and tariff-exposed countries, within a global general equilibrium framework. Our quantitative exercise replicates the observed effects of the 2018 tariffs on the U.S. economy and predicts a 1.6 pp decline in U.S. output, a 0.8 pp rise in inflation, and a 4.8% appreciation of the dollar in response to a retaliatory trade war linked to tariffs announced on “Liberation Day.” Tariff threats, even in the absence of actual implementation, are self-defeating—leading to a 4.1% appreciation of the dollar, 0.6% deflation, and a 0.7 pp decline in output, as agents re-optimize in anticipation of future distortions. Dollar appreciates less or even can depreciate under retaliation, tariff threats, and increased global uncertainty. |
| JEL: | E0 F40 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33686 |
| By: | Michael Coopman; Austin Jacobs; Henry Pascoe; J. E. Pascoe |
| Abstract: | The structure bilateral trading costs is one of the key features of international trade. Drawing upon the freeness-of-trade matrix, which allows the modeling of N-state trade costs, we develop a ``geometry of inconvenience'' to better understand how they impact equilbrium outcomes. The freeness-of-trade matrix was introduced in a model by Mossay and Tabuchi, where they essentially proved that if a freeness-of-trade matrix is positive definite, then the corresponding model admits a unique equilibrium. Drawing upon the spectral theory of metrics, we prove the model admits nonunique, perverse, equilibria. We use this result to provide a family of policy relevant bipartite examples, with substantive applications to economic sanctions. More generally, we show how the network structure of the freeness of trade is central to understanding the impacts of policy interventions. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.07700 |
| By: | Nicolas Djob Li Ngue Bikob (CY Cergy Paris Université, THEMA) |
| Abstract: | This paper is a model of an open economy in two countries in which we answer the question of whether the non-cooperative indirect tax should be in the country of consumption or the country of production. In this paper, each country has skilled and unskilled labor used in the production of differentiated goods in a monopolistically competitive economy. When a country raises its tax level, this causes both cross-border movement of firms and changes in labor and capital income, influencing welfare at home and abroad. We show that if in a country skilled labor is used more intensively than unskilled labor in the production of differentiated goods, the non-cooperative tax levied in the country of production leads to higher welfare than that levied in the country of consumption. The opposite is true if the country uses unskilled labor more intensively in the production of differentiated goods. |
| Keywords: | tax competition, origin principle, destination principle, monopolistic competition |
| JEL: | F10 H20 H25 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ema:worpap:2025-07 |