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on International Trade |
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Issue of 2026–03–02
twenty-one papers chosen by Nicola Daniele Coniglio, Università degli Studi di Bari “Aldo Moro” |
| By: | Hale Utar |
| Abstract: | Using administrative longitudinal firm- and plant-level data from Mexico that links manufacturing firms to their customs records and covers the period 2014–2023, I examine whether US tariffs targeting China have contributed to a manufacturing revival in the southern part of North America. Leveraging the abrupt shift in US trade policy as a natural experiment, and constructing firm-level trade policy exposure measures based on firms’ pre-shock trade portfolios at the product level, I show that higher US tariffs on China significantly increased manufacturing output and employment. Adjustment occurs along both intensive and extensive margins, through expansion of existing plants and the establishment of new manufacturing plants by incumbent firms. Foreign multinationals and their domestic affiliates operating under Mexico’s export platform, IMMEX, drive these gains in manufacturing output and jobs, with U.S.-headquartered firms making a particularly notable contribution. The employment response is concentrated among production workers and technicians, particularly in technology-intensive industries embedded in North American supply-chains. These findings provide firm-level evidence that heightened import protection in the United States has stimulated manufacturing activity elsewhere in North America — namely, in Mexico. |
| Keywords: | trade war, global value chains, multinational firms, manufacturing, employment, nearshoring |
| JEL: | F13 F14 F23 F61 F68 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12425 |
| By: | Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Russia’s full-scale invasion of Ukraine in February 2022 has triggered profound structural changes in the country’s economy, reshaping patterns of foreign trade, foreign direct investment and sectoral specialisation. This paper analyses the shifts in Ukraine’s trade and investment structures over the past three years and assesses their implications for Ukraine’s future competitiveness and for EU-Ukraine economic relations, with particular attention to the EU’s strategic autonomy in an increasingly fragmented global economy. The analysis shows a rapid reorientation of Ukraine’s merchandise exports towards the EU, driven by emergency trade liberalisation and alternative logistics routes, alongside a marked decline in exports to China. At the same time, Ukraine’s dependence on Chinese imports has intensified, especially for machinery and high-tech inputs critical to defence production, creating new security vulnerabilities. Agriculture has emerged as the most resilient export sector, while metallurgy and manufacturing have suffered lasting losses. Ukraine’s FDI inflows remain notably weak compared with regional peers, with limited progress in attracting investment into high-value and strategic sectors. The paper further examines Ukraine’s role in critical raw materials, renewable energy, agriculture and drone production, highlighting missed opportunities and emerging risks for the EU. It concludes that without faster, more co-ordinated EU engagement – particularly in critical minerals, green energy, defence-industrial integration and investment de-risking – the EU risks losing strategic influence in Ukraine and undermining its own long-term economic and security objectives. |
| Keywords: | Ukraine, the EU, China, the US, foreign trade, FDI, renewable energy, critical minerals, agriculture, competitiveness, security, DCFTA, CAP |
| JEL: | F10 F21 F50 F52 F55 O50 Q17 Q34 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:103 |
| By: | Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Global value chains (GVCs) are intricate international networks in which the production and distribution of goods and services across multiple economies and industries is coordinated. Their complexity introduces strategic dependencies when economies or industries rely heavily on a limited number of foreign suppliers. Such dependencies can also create additional vulnerabilities, particularly at choke points (i.e. key links or nodes in the chain) whose disruption – whether due to political instability and geopolitical tensions, natural disasters, pandemics or policy shocks and trade restrictions – can halt production. This study builds on previous research by examining two factors (i) size dependencies arising when an importing economy-industry pair relies largely on the inputs of a partner economies, and (ii) choke dependencies, where imports from one economy pass through another, creating potential choke points. Choke dependency is particularly concerning, as disruptions in the choke economy can impact not only its direct exports but also the flow of goods from other suppliers. Using the multi-country input-output tables (MC IOTs), this study introduces two indicators to assess dependencies (i) ‘size dependency’, based on the share of an economy-industry’s foreign output sourced from a specific partner, and (2) ‘choke dependency’, based on the pass-through frequency (ptf) indicator, which reveals how often inputs from third economies are routed through a particular partner. An economy-industry pair is considered dependent if it meets thresholds for size dependency, choke dependency or both. This comprehensive approach aims to offer a deeper understanding of systemic vulnerabilities in global trade networks. |
| Keywords: | Global value chains, choke points, dependencies, vulnerabilities, GVC metrics |
| JEL: | C67 F14 F15 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:wii:rpaper:rr:480 |
| By: | Ralph Ossa; Stephen J. Redding |
| Abstract: | A central insight from neoclassical economics is that international trade operates like an improvement in production technology. It generates mutual aggregate welfare gains for countries as a whole, but creates winners and losers within countries. Tariffs are a tax on this trading technology and distort the prices faced by domestic consumers and producers. Large countries can use tariffs to improve their terms of trade on world markets. But if all countries try to do so, they can end up with lower welfare than if they cooperated to liberalize trade. Tariffs can be used to redistribute income between the winners and losers from trade within countries. But there can be other more efficient ways to achieve redistribution. Policies to promote economic activity in critical industries can be rationalized based on externalities or national security. But these arguments typically rationalize targeted policies towards those industries and tariffs can be dominated by other policy interventions. Empirical findings from the recent waves of US tariffs suggest that most of the incidence of these tariffs has been borne by US importers, wholesalers, retailers and consumers rather than by foreign exporters. These tariffs have led to a large-scale reorganization of US supply chains away from China to third countries. Although this reorganization has substantially reduced China's share of US imports, the US remains indirectly exposed to China through the imports of these third countries. |
| Keywords: | comparative advantage, tariffs, trade, and welfare |
| Date: | 2026–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2155 |
| By: | Tamar den Besten; Diego R. Känzig |
| Abstract: | We study the macroeconomic effects of tariff policy using U.S. historical data from 1840–2024. We construct a narrative series of plausibly exogenous tariff changes – based on major legislative actions, multilateral negotiations, and temporary surcharges – and use it as an instrument to identify a structural tariff shock. Tariff increases are contractionary: imports fall sharply, exports decline with a lag, and output and manufacturing activity drop persistently. The shock transmits through both supply and demand channels. Prices rise in the full sample but fall post-World War II, a pattern consistent with changes in the monetary policy response and with stronger international retaliation and reciprocity in the modern trade regime. |
| JEL: | E30 F13 F14 F41 H20 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34852 |
| By: | Lisa Scheckenhofer; Feodora Teti; David Torun; Joschka Wanner |
| Abstract: | Key MessagesEU military export bans in 2022-23 were less effective due to gaps in the sanction regimeOnce these gaps were closed, direct EU exports to Russia ceased, but sanctions were circumvented via indirect routesExport bans raised trade costs by only 19 percent, far below the prohibitive levels implied by a fully enforced banStronger enforcement and political pressure on intermediary countries in early 2024 reduced exports to eight percent of pre-war levelComprehensive enforcement can substantially constrain Russiaʼs access to critical inputs |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:econpb:_80 |
| By: | Sebastián Villano (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía) |
| Abstract: | This paper examines how trade liberalization and the signing of integration agreements affect growth and welfare in Latin America and the Caribbean (LAC), with a particular focus on the role of deep trade agreements. We distinguish between, on the one hand, less deep agreements that grant tariff preferences or establish free trade areas mainly in goods and, in some cases, also in services, without incorporating a broad set of additional regulatory disciplines; and, on the other hand, deep agreements that combine free trade in goods and services with more extensive commitments in areas such as investment, intellectual property, competition policy, government procurement, regulatory standards and other dimensions of economic policy. The analysis relies on a dynamic Structural Gravity Model of Trade (SGMT), formulated as a dynamic general equilibrium model with growth driven by capital accumulation. It uses an improved dataset that corrects measurement biases and, in particular, extends and refines the coverage of trade agreements. On this basis, the paper conducts counterfactual simulations to compare alternative integration strategies: deepening existing agreements within LAC and signing deep agreements between the region and major global economic hubs. The results show that deep agreements generate trade effects that are roughly three times larger than those associated with shallow or medium-depth agreements. In addition, the dynamic welfare gains from deep agreements—measured in terms of real consumption—are about twice as large as their static effects. This gap highlights the importance of capital accumulation and long-run adjustment margins, which can only be captured adequately in a dynamic framework. Although a large share of intraregional trade in LAC already takes place under preferential agreements, the simulations indicate that modernizing and deepening existing commitments yields larger welfare gains than prioritizing the signing of new agreements, even with extra-regional partners. In particular, scenarios in which LAC acts as an integrated bloc and signs deep agreements with major global hubs—such as Europe, North America or Asia—emerge as the option that maximizes aggregate welfare gains. Taken together, the findings provide quantitative evidence for trade policymaking in the region: they suggest that the main margin for improvement lies not only in opening additional markets, but in moving towards deeper and more coherent integration that strengthens regional resilience, enhances competitiveness and supports long-run growth in Latin America and the Caribbean |
| Keywords: | Deep trade agreements, Latin America, regional integration, dynamic gravity model, trade policy |
| JEL: | F13 F15 F47 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ulr:wpaper:dt-25-25 |
| By: | Sharat Ganapati; Colin Hottman |
| Abstract: | Transaction-level quantity discounts are a pervasive feature of US trade, shaping both price variation and tariff incidence. Using administrative microdata, we show that these discounts reflect transaction-level scale economies rather than market power. Accounting for these micro-level economies resolves a key puzzle: while observed import prices rose one-for-one with 2018-2019 US tariffs, we show this was driven by the loss of scale economies as transaction sizes collapsed. Controlling for this scale effect, the strategic pass-through of tariffs to scale-free prices falls to 60 percent, implying foreign exporters absorbed a significant share of the burden through reduced markups. |
| Keywords: | tariffs, markups, pass-through |
| JEL: | F1 F13 F14 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12500 |
| By: | Alviarez, Vanessa; Fioretti, Michele; Kikkawa, Ken; Morlacco, Monica |
| Abstract: | This paper derives a closed-form expression linking aggregate markups on imported inputs to concentration in a model of firm-to-firm trade with two-sided market power. Our theory extends standard oligopoly insights in two dimensions. First, it reveals that markups increase with exporter concentration and decrease with importer concentration, reflecting the balance of oligopoly and oligopsony forces. Second, it adapts conventional market definitions to reflect rigid trading relationships, yielding new concentration measures that capture competition in firm-to-firm trade. Analysis of Colombian transaction-level import data shows these differences are key to understanding markup dynamics in international trade. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cbscwp:336734 |
| By: | Yang Jiao; Ting Lan; Yang Liu; Xinrui Zhao |
| Abstract: | This paper examines the inflationary effects of shipping delays. We construct a novel measure of port-to-port shipping time using real-time AIS maritime data and link it with granular port-level trade and item-level price data. We document substantial heterogeneity in goods imports across ports and regions, variation in exposure to delays, and aggregate price responses to congestion shocks. Exploiting cross-product variations in exposure, we estimate both the average and dynamic effects of shipping delays on consumer prices, finding that a 100-hour delay raises inflation by roughly 0.5 percentage points at its five-month peak. |
| Keywords: | Supply Chain Disruption; Port Congestion; Inflation; Price Dynamics |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/026 |
| By: | Alviarez, Vanessa; Fioretti, Michele; Kikkawa, Ken; Morlacco, Monica |
| Abstract: | This paper develops a theory of bargaining in firm-to-firm trade with two-sided market power. The framework accommodates flexible market structures, yielding analytical expressions for pair-specific markups and pass-through elasticities. In U.S. import data, we estimate strong importer bargaining power and an upward-sloping export supply curve, consistent with oligopsony power. Pass-through of the 2018 tariffs in firm-to-firm relationships is incomplete, in contrast to product-level studies, primarily due to exporter cost reductions driven by falling demand from dominant buyers. Our study highlights how bargaining and network rigidities shape price outcomes, with implications for markup dispersion and shock propagation in global value chains. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cbscwp:336733 |
| By: | Bumsoo Kim; Marc De la Barrea; Masao Fukui |
| Abstract: | We develop a dynamic quantitative model of trade and labor adjustment, incorporating nominal wage rigidity and consumption–saving decisions, to study how China’s currency peg interacted with its rapid growth in shaping the US economy. We show that the peg temporarily boosts China’s export growth by preventing an appreciation of the Chinese currency, thereby amplifying the US labor-market consequences of the China shock. At the same time, the temporary export boom increases China’s savings and leads to a larger US trade deficit. Calibrating the model to match trade and labor-market flow data, we find that China’s currency peg played a quantitatively important role in the US manufacturing decline, the widening US trade deficit, and unemployment dynamics. These results underscore the importance of exchange-rate adjustment (or the lack thereof) for understanding trade shocks. We also find that the overall welfare impact of the China shock remains significant and positive. |
| JEL: | F0 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34823 |
| By: | Ohyun Kwon (School of Economics, Drexel University); Arne Nagengast (Deutsche Bundesbank); Jangsu Yoon (Department of Economics, University of Kentucky); Yoto Yotov (School of Economics, Drexel University) |
| Abstract: | We combine the latest difference-in-differences estimators for treatments with exit and structural gravity literature to evaluate the effects of sanctions on trade, when they are in place and when they are lifted. Our analysis shows that sanctions reduce trade between senders and targets by 58%, with estimates from our preferred model 50% larger than those from traditional two-way fixed effects (TWFE) models. A bias decomposition highlights arbitrary weighting and contamination bias in TWFE estimates. Sensitivity checks confirm the robustness of our findings, emphasizing the relevance of these methods for gravity estimations, including trade, migration, foreign investment, and other bilateral flows. |
| Keywords: | Difference-in-differences, Multiple treatments, Gravity, Sanctions, Trade. |
| JEL: | C13 C23 F10 F13 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202606 |
| By: | Lionel Fontagné (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris); Yoto V Yotov (Drexel University, Ifo Institute) |
| Abstract: | European integration is now faced with the question of strategic autonomy. Against this backdrop, this paper has three objectives. First, it uses disaggregated trade data and established empirical methods to assess the benefits of European integration on trade among the members of the European Union (EU) as well as on trade between EU members and non-member countries, including non-members that are part of the Single Market. Second, it evaluates the costs of EU strategic autonomy -implying not trading with "riskier" partners. Third, it asks whether deeper integration within the EU can alleviate these costs. The paper shows that the gains from European integration are substantial, albeit heterogeneous across Member States, non-members, and sectors, and that the costs of strategic autonomy can be offset by deeper, but comparatively more modest, integration efforts within the European Union. |
| Keywords: | Strategic Autonomy, Risky Suppliers, Trade, Single Market, European Integration |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:halshs-05512419 |
| By: | Gabriel Felbermayr; Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Heider Kariem; Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Yoto V. Yotov |
| Abstract: | How would fundamental political change in Iran, leading to a democratic system with a free and rules-based economic order, affect Germany and the EU economically? In the event of change, sanctions could be scaled back, allowing Iran to rejoin the global economy. This study quantifies the economic effects of such a transformation. It neither advocates for nor legitimises the lifting or easing of sanctions under the current regime or without far-reaching and credible reforms that fully address the concerns underlying the sanctions currently in place. Using the newest available data and quantitative methods, the results indicate that lifting EU sanctions alone could raise Iran’s real GDP by more than 80% in the long run while generating moderate but economically meaningful gains for Germany and the EU of around 0.3-0.4% of GDP. These gains are driven by expanded trade, lower energy and input prices, and improved allocative efficiency. When sanctions removal is combined with plausible scenarios of productivity catch-up with Turkey or South Korea, Iran’s GDP would increase by 240-388% and the gains for Europe would increase further, underscoring the strong complementarity between trade integration and productivity growth. Moreover, Iran’s reintegration would reduce energy price volatility, improve the security of maritime trade routes, and lower migration pressures. Overall, the findings suggest that a negotiated transition and rules-based reintegration of Iran would generate substantial mutual economic benefits while contributing to regional and global stability. |
| Keywords: | Iran; economic sanctions; regime transition; trade integration; energy markets; oil and gas prices; foreign direct investment; European Union; inflation; political economy |
| JEL: | F13 F15 F51 Q41 Q48 O53 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:wii:rpaper:rr:481 |
| By: | Hinz, Julian; Lohmann, Aaron; Mahlkow, Hendrik; Vorwig, Anna |
| Abstract: | • The 2025 US tariffs are an own goal: American importers and consumers bear nearly the entire cost. Foreign exporters absorb only about 4% of the tariff burden - the remaining 96% is passed through to US buyers. • Using shipment-level data covering over 25 million transactions valued at nearly $ 4 trillion, we find near-complete pass-through of tariffs to US import prices. • US customs revenue surged by approximately $ 200 billion in 2025 - a tax paid almost entirely by Americans. • Event studies around discrete tariff shocks on Brazil (50%) and India (25-50%) confirm: export prices did not decline. Trade volumes collapsed instead. • Indian export customs data validates our findings: when facing US tariffs, Indian exporters maintained their prices and reduced shipments. They did not "eat" the tariff. |
| Abstract: | • Die US-Zölle von 2025 sind ein Eigentor: Amerikanische Importeure und Verbraucher tragen nahezu die gesamten Kosten. Ausländische Exporteure absorbieren nur etwa 4% der Zolllast - die restlichen 96% werden an US-Käufer weitergegeben. • Auf Basis von Lieferungsdaten mit über 25 Millionen Transaktionen im Wert von fast 4 Billionen Dollar finden wir eine nahezu vollständige Weitergabe der Zölle an die US-Importpreise. • Die US-Zolleinnahmen stiegen 2025 um etwa 200 Milliarden Dollar - eine Steuer, die fast ausschließlich von Amerikanern bezahlt wird. • Ereignisstudien zu diskreten Zollschocks gegen Brasilien (50%) und Indien (25-50%) bestätigen: Exportpreise fielen nicht. Stattdessen brachen die Handelsvolumina ein. • Indische Exportzolldaten validieren unsere Ergebnisse: Konfrontiert mit US-Zöllen hielten indische Exporteure ihre Preise und reduzierten ihre Lieferungen. Sie "schluckten" den Zoll nicht. |
| Keywords: | Tariffs, Trade Policy, Pass-Through, Import Prices, United States, Zölle, Handelspolitik, Importpreise, Vereinigte Staaten |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:336744 |
| By: | Pinelopi Koujianou Goldberg; Reka Juhasz; Nathan Lane; Giulia Lo Forte; Jeff Thurk; Pinelopi Goldberg |
| Abstract: | The resurgence of subsidies and industrial policies has raised concerns about their potential inefficiency and alignment with multilateral principles. Critics warn that such policies may divert resources to less efficient firms and provoke retaliatory measures from other countries, leading to a wasteful “subsidy race.” However, subsidies for sectors with inherent cross-border externalities can have positive global effects. This paper examines these issues within the semiconductor industry: a key driver of economic growth and innovation with potentially significant learning-by-doing and strategic importance due to its dual-use applications. Our study aims to: (1) document and quantify recent industrial policies in the global semiconductor sector, (2) explore the rationale behind these policies, and (3) evaluate their economic impacts, particularly their cross-border effects, and compatibility with multilateral principles. We employ historical analysis, natural language processing, and a model-based approach to measure government support and its impacts. Our findings indicate that government support has been vital for the industry’s growth, with subsidies being the primary form of support. They also highlight the importance of cross-border technology transfers through FDI, business and research collaborations, and technology licensing. China, despite significant subsidies, does not stand out as an outlier compared to other countries, given its market size. Model estimates suggest the presence of learning-by-doing at the firm-product level as well as economies of scope within a firm and substantial cross-border learning spillovers. These spillovers likely reflect cross-country technology transfers and the role of fabless clients and input suppliers in disseminating knowledge globally through their interactions with foundries. Such cross-border spillovers are not merely accidental but result from deliberate actions by market participants that cannot be taken for granted. Firms may choose to share knowledge across borders or restrict access to frontier technology, thereby excluding certain countries. Future research will use model estimates to simulate the quantitative implications of subsidies and to explore the dynamics of a “subsidy race” in the semiconductor industry. |
| Keywords: | semiconductors, industrial policy, subsidies, learning-by-doing, multilaterism |
| JEL: | F13 F61 L63 N60 O38 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12495 |
| By: | Nicolas Dietl; Sebastian Krautheim |
| Abstract: | We interpret the increased polarization in Western societies over global economic issues as an interaction of economic forces and shifts in a society’s social identity equilibrium. We combine social identity theory with standard small open economy model of international trade to study the effect of economic globalization with a bias towards "unethical" production. Starting from a social cohesion equilibrium where all consumers identify with society at large, we find that a falling price of the unethical variety leads to an erosion of social cohesion and can ultimately lead to a polarized social identity equilibrium where caring consumers are estranged from the society they live in. We show that this form of economic globalization is not only not always a Pareto improvement, but may even lead to aggregate welfare losses. |
| Keywords: | globalization backlash, social identity, polarization, Ricardo, social cohesion |
| JEL: | F13 F68 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12503 |
| By: | Luke Morgan; Carlos Ramírez; André F. Silva; Andrei Zlate |
| Abstract: | During times of increased trade policy uncertainty and geopolitical tensions, supply chain disruptions can be an important source of instability. Due to the interconnected nature of modern economies, problems in one market can often ripple across others, triggering logistical bottlenecks and longer delivery times. |
| Date: | 2026–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102442 |
| By: | Cecilia Carvalho; Nicolas Goulart; Daniel Monte; Emanuel Ornelas |
| Abstract: | We study the sustainability of international trading rules in a multipolar world. A rules-based equilibrium is shaped by three forces. A static temptation to exploit market power undermines cooperation, while two dynamic forces support it: the efficiency gains from rules and the cost of re-establishing the regime once a country becomes hegemonic. When multipolarity is short-lived and involves few co-leaders, a strong enough prospect of future hegemony ensures rules cooperation. However, in a more fragmented world, the sustainability of rules is more likely if shared leadership is expected to persist, to ensure long-lasting efficiency gains. |
| Keywords: | hegemonic stability theory, World Trade Organization, trade agreements, multipolarity |
| Date: | 2026–02–18 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2152 |
| By: | Keith Head; Thierry Mayer; Marc Melitz; Chenying Yang |
| Abstract: | We model a multi-stage supply chain for EVs from battery production to vehicle distribution. Given industrial policies, firms select where to open facilities at each stage. This is a difficult combinatorial choice problem that we solve with a fast mixed integer linear programming formulation. We estimate the variable and fixed costs parameters using SMM. Counterfactual simulations reveal a tension between boosting EV adoption and promoting domestic supply chains. Due to increasing returns, even unconditional subsidies raise the number of factories in the subsidizing region—by about 16% for EVs and 7% for cells in North America, and even more in Europe. Theoretically, local assembly requirements can push down delivered marginal costs relative to unconditional subsidies. Empirically, local content requirements quadruple the expansion of cell factories in America, but they drive up costs and reduce subsidy uptake, undoing more than half of the EV adoption stimulus coming from pure buyer subsidies. |
| JEL: | C63 F14 F23 L50 L62 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34884 |