Periodic Reporting for period 3 - TRASC (Trade Agreements and Supply Chains)
Reporting period: 2022-10-01 to 2024-03-31
The project is motivated by three major trends that have characterised international trade during the last few decades. The first is the emergence of global supply chains. Technological progress and falling trade barriers have made it easier for firms to retain within their boundaries and in their domestic economies only a subset of activities. As a result, trade in intermediate inputs now accounts for as much as two-thirds of international trade. Global supply chains are largely shaped by multinational corporations, which source inputs from their own subsidiaries and independent suppliers around the world.
A second major trend is the proliferation of regional trade agreements (RTAs). There are currently more than 350 RTAs in force, with many more being negotiated (see Figure 1). Trade agreements have not only risen in number but have also become “deeper” over time, often encompassing provisions that go beyond traditional trade policy, such as rules on investment and intellectual property rights. It had been argued that deep trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected multinational firms.
The last decades have also witnessed the rise of China as a world trading power. China went from accounting for around 2% of global manufacturing exports in 1990 to being the largest exporting country in the world. Politicians in high-income countries have been pointing at increasing Chinese import competition as the cause for the decline in manufacturing jobs and have increasingly used trade barriers -- in particular antidumping (AD) duties -- to protect their economies against China. For example, between 1988 and 2016, average US AD duties against imports from China more than tripled (see Figure 2). These measures cover hundreds of products, including key inputs.
My research agenda is divided in two parts and has two broad objectives. In the first part, I examine the impact of trade policies on supply chains. In particular, i) I study the effects of trade barriers on employment in protected industries and vertically-related (downstream and upstream) industries; ii) I examine the determinants of firms’ sourcing decisions, and how they are affected by trade agreements.
The second part aims to shed light on the political factors that shape trade agreements and protectionist trade measures. Specifically, i) I examine how lobbying by large corporations affects RTAs (the probability that they are ratified, as well as the provisions included in them) and AD duties (the probability that new protectionist measures are introduced or that existing measures are renewed); ii) I study the determinants of legislators’ decisions on the ratification of trade agreements.
A second major trend is the proliferation of regional trade agreements (RTAs). There are currently more than 350 RTAs in force, with many more being negotiated (see Figure 1). Trade agreements have not only risen in number but have also become “deeper” over time, often encompassing provisions that go beyond traditional trade policy, such as rules on investment and intellectual property rights. It had been argued that deep trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected multinational firms.
The last decades have also witnessed the rise of China as a world trading power. China went from accounting for around 2% of global manufacturing exports in 1990 to being the largest exporting country in the world. Politicians in high-income countries have been pointing at increasing Chinese import competition as the cause for the decline in manufacturing jobs and have increasingly used trade barriers -- in particular antidumping (AD) duties -- to protect their economies against China. For example, between 1988 and 2016, average US AD duties against imports from China more than tripled (see Figure 2). These measures cover hundreds of products, including key inputs.
My research agenda is divided in two parts and has two broad objectives. In the first part, I examine the impact of trade policies on supply chains. In particular, i) I study the effects of trade barriers on employment in protected industries and vertically-related (downstream and upstream) industries; ii) I examine the determinants of firms’ sourcing decisions, and how they are affected by trade agreements.
The second part aims to shed light on the political factors that shape trade agreements and protectionist trade measures. Specifically, i) I examine how lobbying by large corporations affects RTAs (the probability that they are ratified, as well as the provisions included in them) and AD duties (the probability that new protectionist measures are introduced or that existing measures are renewed); ii) I study the determinants of legislators’ decisions on the ratification of trade agreements.
Combining detailed information on trade barriers with input-output data, we study the effects of trade protection on employment along supply chains. The main focus is on the effects of US AD duties against China on US employment. To deal with endogeneity concerns, we develop an instrument for AD protection, which exploits exogenous variation in the political importance of industries driven by changes in the identity of swing states across electoral terms. We find that AD duties have a net negative impact on US jobs: they reduce employment growth in downstream industries, with no significant effects in protected and upstream industries. We provide evidence for the mechanisms behind these effects: trade protection decreases imports and raises prices in targeted indus- tries, increasing costs for downstream producers. Our analysis shows that, rather than fostering employment growth, politically-motivated protection gives rise to job losses.
We examine firm-level lobbying on the ratification of affects the content of Free Trade Agreements (FTAs). Using detailed information from lobbying reports filed under the Lobbying Disclosure Act, we construct a unique dataset that allows us to identify which firms lobby on FTAs, their position (in favor or against), and their lobbying effort on the ratification of each trade agreement. Using this dataset, we show that lobbying on FTAs is dominated by large internationalized firms, which are in favor of these agreements. On the intensive margin, individual firms put more effort supporting agreements that generate larger potential gains – larger improvements in their access to foreign consumers and suppliers and smaller increases in domestic competition – and that are more likely to be opposed by politicians. To rationalize these findings, we develop a new model of endogenous lobbying on FTAs.
We also study how firm-level lobbying shapes the content of FTAs. The dataset provides information on firms' lobbying effort to influence deep trade policies (e.g. intellectual property rights, investment rules, sanitary and phytosanitary measures, labor and environmental regulations), both in terms of their expenditures on specific trade issues and the institutions (Congress and federal agencies) they target. We also collect information on various characteristics of lobbying firms, including their size, multinational status, and the main sector in which they operate. We use this dataset to document novel facts. We show that lobbying on deep trade policies is dominated by large firms, most of which are multinational corporations. On the intensive margin, larger firms spend more, lobby on more deep trade issues, and target more institutions. To rationalize our empirical findings, we develop a theoretical model in which heterogeneous firms choose whether to be politically organised and how much to spend lobbying on each deep trade issue.
Finally, we construct a unique dataset to examine the determinants of votes on trade agreements by members of the European Parliament (MEPs). Against common Eurosceptic views, we find that EU legislators’ votes on trade agreements reflect the trade policy interests of their electorate. The interests of large corporations also affect MEPs’ voting decisions.
We examine firm-level lobbying on the ratification of affects the content of Free Trade Agreements (FTAs). Using detailed information from lobbying reports filed under the Lobbying Disclosure Act, we construct a unique dataset that allows us to identify which firms lobby on FTAs, their position (in favor or against), and their lobbying effort on the ratification of each trade agreement. Using this dataset, we show that lobbying on FTAs is dominated by large internationalized firms, which are in favor of these agreements. On the intensive margin, individual firms put more effort supporting agreements that generate larger potential gains – larger improvements in their access to foreign consumers and suppliers and smaller increases in domestic competition – and that are more likely to be opposed by politicians. To rationalize these findings, we develop a new model of endogenous lobbying on FTAs.
We also study how firm-level lobbying shapes the content of FTAs. The dataset provides information on firms' lobbying effort to influence deep trade policies (e.g. intellectual property rights, investment rules, sanitary and phytosanitary measures, labor and environmental regulations), both in terms of their expenditures on specific trade issues and the institutions (Congress and federal agencies) they target. We also collect information on various characteristics of lobbying firms, including their size, multinational status, and the main sector in which they operate. We use this dataset to document novel facts. We show that lobbying on deep trade policies is dominated by large firms, most of which are multinational corporations. On the intensive margin, larger firms spend more, lobby on more deep trade issues, and target more institutions. To rationalize our empirical findings, we develop a theoretical model in which heterogeneous firms choose whether to be politically organised and how much to spend lobbying on each deep trade issue.
Finally, we construct a unique dataset to examine the determinants of votes on trade agreements by members of the European Parliament (MEPs). Against common Eurosceptic views, we find that EU legislators’ votes on trade agreements reflect the trade policy interests of their electorate. The interests of large corporations also affect MEPs’ voting decisions.
We will examine the effects of trade agreements on domestic and global supply chains. We will use firm-level data from Belgium and exploit exogeneous variation in the attractiveness of some source countries following the 2004 and 2007 EU enlargements. We will examine whether, following these trade agreements, Belgian firms started importing new inputs from suppliers located in the EU members. We will also study whether EU enlargement led Belgian firms to replace domestic suppliers with foreign suppliers from new member states to substitute suppliers from old EU members (e.g. France or Germany) and extra-EU countries (e.g. China, Japan) with suppliers from new members (e.g. Poland or Romania).
We will also examine the impact of Brexit on global supply chains. On the empirical front, we will exploit we rich data on multinationals and their suppliers, as well as the detailed information on the legal provisions contained in the FTA between the UK and the EU. On the theoretical front, we will incorporate input sourcing decisions in a model of multinational production.
Multinational corporations dominate international trade and global supply chains, accounting for almost two thirds of global trade flows. Using firm-level data from the United States, we will examine the determinants of multinationals’ decisions to source tangible and intangible inputs from their foreign subsidiaries or from independent suppliers. Using firm-level data from Belgium, we will examine how multinationals can boosts affiliates’ trade by alleviating country-specific trade frictions through their networks.
On the political economy front, we will study lobbying on trade protection. We will construct a dataset allows us to identify all firms and associations that lobbied on US AD petitions and expiry reviews during 2008-2020, and their lobbying expenditures in favor or against trade protection. We will examine the effects of these lobbying efforts on the probability that an AD petition/review is successful.
We will also examine the impact of Brexit on global supply chains. On the empirical front, we will exploit we rich data on multinationals and their suppliers, as well as the detailed information on the legal provisions contained in the FTA between the UK and the EU. On the theoretical front, we will incorporate input sourcing decisions in a model of multinational production.
Multinational corporations dominate international trade and global supply chains, accounting for almost two thirds of global trade flows. Using firm-level data from the United States, we will examine the determinants of multinationals’ decisions to source tangible and intangible inputs from their foreign subsidiaries or from independent suppliers. Using firm-level data from Belgium, we will examine how multinationals can boosts affiliates’ trade by alleviating country-specific trade frictions through their networks.
On the political economy front, we will study lobbying on trade protection. We will construct a dataset allows us to identify all firms and associations that lobbied on US AD petitions and expiry reviews during 2008-2020, and their lobbying expenditures in favor or against trade protection. We will examine the effects of these lobbying efforts on the probability that an AD petition/review is successful.