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on International Trade |
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Issue of 2025–06–23
fifteen papers chosen by Nicola Daniele Coniglio, Università degli Studi di Bari “Aldo Moro” |
| By: | Chen, Natalie (University of Warwick, CAGE, CESifo, and CEPR); Novy, Dennis (University of Warwick, CAGE, CESifo, CEP/LSE, and CEPR); Solórzano, Diego (Banco de México) |
| Abstract: | In 2018 and 2019, the US administration increased tariffs on imports from China. Did these tariffs lead to more US imports from other countries such as Mexico? Using highly disaggregated data on the universe of Mexican firm-level exports, we find evidence of trade diversion from China to Mexico. We then combine the export data with detailed longitudinal employer-employee data to investigate the impact of trade diversion on labor market outcomes for workers employed by Mexican exporters. We find that trade diversion increased the labor demand of exporters exposed to US tariffs against China, resulting in more employment and higher wages, especially for low-wage workers such as female, unskilled, younger, and non-permanently insured employees. The effects were concentrated in technology and skill-intensive manufacturing industries. |
| Keywords: | Employment, exports, …rms, tari¤s, trade costs, trade diversion, wages, workers JEL Classification: F12, F14, L11 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:cge:wacage:755 |
| By: | Tiago Cavalcanti; Pedro Molina Ogeda; Emanuel Ornelas |
| Abstract: | We examine the indirect effects of the US-China trade war on Brazil's labor market. Using industry-specific tariff changes and the sectoral employment distribution across local labor markets, we construct a measure of regional exposure to the trade conflict. Following higher exports to China, our findings reveal that regions more exposed to Chinese retaliatory tariffs on US exports experienced a relative increase in formal employment and wage bills. In contrast, American tariffs on Chinese ex-ports had no significant impact on Brazilian labor markets. These results contribute to a better understanding of the intricate worldwide implications of bilateral trade wars. |
| Keywords: | trade war, trade diversion, local labor markets, Brazil |
| Date: | 2025–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2098 |
| By: | Kimberly Clausing; Jonathan Colmer; Allan Hsiao; Catherine Wolfram |
| Abstract: | We study carbon border adjustment mechanism (CBAM) policies, as currently being implemented by the EU and UK. Policy discussions have cited three motivations and one concern. CBAMs can improve domestic competitiveness in regulated markets, reduce emissions leakage to unregulated markets, and encourage other countries to tax carbon. But CBAMs may particularly disadvantage lower-income trading partners. We evaluate these forces with a quantitative equilibrium model and plant-level data on aluminium and steel production worldwide. Our data cover the most emissions-intensive and heavily traded sectors targeted in the first phase of EU and UK implementation. We find that CBAMs can effectively boost competitiveness, curb leakage, and encourage regulation, while also avoiding disproportionate impacts on lower-income countries. |
| Keywords: | carbon border adjustment mechanisms, emissions leakage, domestic competitiveness, policy spillovers, lower-income countries |
| Date: | 2025–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2097 |
| By: | Silvia Bertarelli (Università degli studi di Ferrara) |
| Abstract: | In this paper, I present a structural gravity model within a framework that considers the cost of acquiring information. This yields a structural gravity equation that incorporates an additional factor related to export dispersion. Aggregated firm-level data from a large sample of countries provides empirical evidence that dispersion influences bilateral trade flows. Dispersion acts as both a source of information and a risk factor that demands risk premia. |
| Keywords: | Shannon's information theory, prior beliefs, extensive margin of trade |
| JEL: | D83 F10 F14 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:srt:wpaper:0425 |
| By: | Andrés Rodríguez-Clare; Mauricio Ulate; Jose P. Vasquez |
| Abstract: | We use a dynamic trade and reallocation model with downward nominal wage rigidities to quantitatively assess the economic consequences of recent U.S. tariff increases on imports from Mexico, Canada, and China, as well as the “reciprocal” tariff changes announced on “Liberation Day” and retaliatory measures by other countries. Higher tariffs lead to a rise in U.S. manufacturing employment, but this comes at the cost of declines in service and agricultural jobs. Overall employment falls, as lower real wages reduce labor-force participation. Real income in the U.S. declines by about 1% by 2028, the final year we assume the tariffs remain in effect. A key feature of our analysis is the disaggregation of the U.S. into its 50 states, incorporating cross-state redistribution of tariff revenue. This allows us to identify which states gain or lose more from the policy shock. Around half of the states experience real income losses, with some seeing declines greater than 3%. At the international level, close U.S. trading partners—including Canada, Mexico, China, and Ireland—suffer the largest real income losses. |
| JEL: | F10 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33792 |
| By: | Hoyos, Mateo (Center for Research and Teaching in Economics); Stellian, Rémi |
| Abstract: | Quantitative trade models predict that trade elasticities vary with comparative advantages, but empirical evidence remains scarce. We provide causal estimates of this relationship by exploiting a quasi-experimental bilateral trade agreement between Colombia and the United States. Using a local projections difference-in-differences approach, extended with state-dependent local projections to account for heterogeneity arising from comparative advantages, we estimate trade elasticities at different horizons. We find that the average short-run trade elasticity is around 1.5, and converges to approximately 4 after seven years. These elasticities increase with comparative advantages: a move from the 25th to 75th percentile in comparative advantages is associated with a 2-percentage-point increase in the long-run elasticity. To measure comparative advantages, we construct a new Revealed Comparative Advantage (RCA) index -- the system bilateral RCA index -- that exploits trade flows across multiple trade partners while preserving the ability to compare Colombia with a specific trade partner regarding their respective comparative advantages. Our findings suggest that comparative advantage shapes the responsiveness of trade flows to policy changes, which has implications for trade theory and quantitative trade models. |
| Date: | 2025–05–15 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:6fya2_v1 |
| By: | Florencia Airaudo; Francois de Soyres; Keith Richards; Ana Maria Santacreu |
| Abstract: | Recent geopolitical tensions have revived interest in understanding the economic consequences of geopolitical fragmentation. Using bilateral trade flows, portfolio investment data, and detailed records of economic policy interventions, we revisit widely-used geopolitical distance metrics, specifically the Ideal Point Distance (IPD) derived from United Nations General Assembly voting. We document substantial variability in measured fragmentation, driven significantly by methodological choices related to sample periods and vote categories, especially in the wake of Russia’s 2022 invasion of Ukraine. Our results show robust evidence of increasing fragmentation in both trade flows and economic policy interventions among geopolitically distant country pairs, with particularly strong effects observed in strategically important sectors and policy motives. In contrast, financial portfolio allocations exhibit weaker, more heterogeneous, and context-sensitive responses. These findings highlight the critical importance of methodological transparency and careful specification when assessing geopolitical realignments and their implications for international economic relations. |
| Keywords: | Fragmentation; Geoeconomics; Trade; Financial Flows |
| JEL: | F14 F36 F50 F60 |
| Date: | 2025–05–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1408 |
| By: | David Christian; Lili Yan Ing (Economic Research Institute for ASEAN and East Asia (ERIA)) |
| Abstract: | This paper examines recent trends in production fragmentation within ASEAN’s manufacturing sector in the context of shifting global trade dynamics and rising economic nationalism. Using the OECD’s Trade in Value Added (TiVA) database, we construct two key indicators: (i) the input fragmentation ratio (FRI), which measures overall reliance on intermediate inputs, and (ii) the import fragmentation ratio (FRM), which captures the extent of cross-border input sourcing. Our analysis reveals that, unlike North America and Europe, ASEAN has not experienced a decline in input fragmentation since the Global Financial Crisis (GFC). However, signs of import defragmentation have emerged since 2010. We also find notable variation in fragmentation patterns across countries and industries. These results highlight the need for further research into the drivers of these trends, including investment and production relocation to ASEAN, market positioning, industry specialisation, and technological factors. |
| Keywords: | production fragmentation; global value chains (GVCs); manufacturing in ASEAN and East Asia; supply chain resilience |
| JEL: | F14 F61 L23 O14 |
| Date: | 2025–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:era:wpaper:dp-2025-01 |
| By: | Alessia Matano (Dipartimento di Economia e Diritto, Università di Roma “La Sapienza”, Italy. AQR-IREA, Universitat de Barcelona, Spain.); Paolo Naticchioni (Roma Tre University and IZA, Italy.) |
| 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: | China’s Import Competition; Final and Intermediate Goods; Product and Process Innovation; Unions; IV Fixed effects estimations. JEL classification: C33, L25, F14, F60, O30, J50. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ira:wpaper:202502 |
| By: | Gereffi, Gary |
| Abstract: | Mexico has been a “nearshoring” platform for the United States (U.S.) economy on a regular basis in recent decades. However, the nature and degree of Mexico’s integration within North America, as well as its ability to create and capture value and innovation rents in its core domestic industries, have varied over time. Previous examples of nearshoring in Mexico in the automotive and textile and apparel industries, we well as regional trade agreements like NAFTA and USMCA and global trade conflicts such as the U.S.-China trade war, have made Mexico a likely candidate to take advantage of recent U.S. industrial policies to strengthen strategic American supply chains. Current U.S. nearshoring opportunities in industries such as semiconductors, electric vehicles, pharmaceutical active ingredients, and rare-earth minerals such as lithium will require active industrial policies in Mexico related to infrastructure (e.g., ports, electricity, water), attracting appropriate foreign direct investment, capability-building in local firms, and building a skilled workforce for new industries. While some investments are occurring at the subnational level in Mexico, a more focused national response will multiply potential nearshoring benefits for Mexico. |
| Date: | 2025–02–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecr:col094:81251 |
| By: | Rafael Dix-Carneiro; Pinelopi Koujianou Goldberg; Costas Meghir; Gabriel Ulyssea; Pinelopi Goldberg |
| 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. |
| Keywords: | trade liberalization, misallocation, distortions, informality |
| JEL: | F14 F16 J46 O17 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11873 |
| By: | Nouira, Ridha (University of Sousse); Ben Salem, Leila (University of Sousse); Saafi, Sami (University of Sousse); Rault, Christophe (University of Orléans) |
| Abstract: | This study explores the link between renewable energy consumption and international trade, with a focus on climate policy. We argue that this relationship is nonlinear and shaped by threshold effects. Using a dynamic threshold model (Seo & Shin, 2016), we analyze data from 1990 to 2023 for 29 developed and developing countries. Our results show that climate policy plays a key role in shaping the renewable energy–trade nexus, with effects depending on policy stringency and development level. In developing countries, renewable energy use consistently boosts exports, regardless of policy stringency. In contrast, in developed countries, strict policies reduce import dependence—signaling energy independence—but may also weaken renewable energy’s positive trade effects due to higher compliance costs and regulatory barriers. These findings call for tailored strategies: developed countries should balance ambitious climate goals with trade efficiency by easing regulatory burdens and promoting international policy coordination, while developing countries can use renewable energy to enhance exports, attract investment, and build technological capabilities. |
| Keywords: | climate policy stringency, international trade, renewable energy consumption, dynamic threshold model, sustainable development |
| JEL: | C5 F1 Q4 Q5 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17955 |
| By: | Eduardo D‡vila (Yale University); AndrŽs Rodr’guez-Clare (UC Berkeley); Andreas Schaab (UC Berkeley); Stacy Tan (Yale University) |
| Abstract: | The classic tariff formula states that the optimal unilateral tariff equals the inverse of the foreign export supply elasticity. We generalize this result and show that an intertemporal tariff formula characterizes the efficient tariff in a large class of dynamic heterogeneous agent (HA) economies with multiple goods. Intertemporal export supply elasticities and relative tariff revenue weights are sufficient statistics for the optimal tariff that decentralizes the efficient allocation. We also develop a general theory of second-best optimal tariffs. In dynamic HA incomplete markets economies, Ramsey optimal tariffs trade off intertemporal terms of trade manipulation against production efficiency, risk-sharing, and redistribution. Intertemporal export supply elasticities and relative tariff revenue weights remain sufficient statistics for the intertemporal terms of trade manipulation motive of second-best optimal tariffs. We apply our results to a quantitative heterogeneous agent New Keynesian (HANK) model with trade. |
| Date: | 2025–05–15 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2444 |
| By: | Philipp Barteska; Jay Euijung Lee |
| Abstract: | How much does the effect of industrial policy depend on the capacity of the bureaucrats implementing it? We exploit the rotation schedule of managers of South Korea's export promotion offices in 87 countries between 1965 and 2000 to show that a one standard deviation increase in bureaucrat ability boosts exports by 37%, while the policy increases exports by 38% on average. Together, this implies the export promotion policy has no effect when implemented by a bureaucrat one standard deviation below average. Under higher-ability bureaucrats, South Korean exports respond more strongly to a country's import demand, suggesting a more effective transmission of market information. We find that performance in the first appointment predicts whether a bureaucrat sees subsequent appointments, highlighting performance-based screening of bureaucrats as a mechanism that increases the policy's effect. |
| Keywords: | industrial policy, bureaucracy, economic development, export promotion |
| Date: | 2025–05–06 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2099 |
| By: | Jasmina Karabegovic (University of Graz, Austria) |
| Abstract: | This paper examines the role of international courts in international agreements, focusing on the WTO and its Dispute Settlement Body (DSB) in the Airbus-Boeing dispute. We model the court as an information provider in a repeated game setting with imperfect public monitoring. For patient governments (the players in this game), efficient agreements are self-enforcing, rendering the court redundant. When governments are less patient, only inefficient agreements are self-enforcing without courts. We provide equilibria in which access to a court enables governments to sustain (substantially) more efficient outcomes relative to the case without courts, regardless of how patient governments are. |
| Keywords: | Repeated games, imperfect public monitoring, international trade, dispute resolution |
| JEL: | C72 C73 D02 F13 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2025-05 |