Trade Policy Uncertainty: Measurement and Impacts on US Firms in Global Value Chains
(Job Market Paper)
Abstract: This paper studies the effects of trade policy uncertainty (TPU) on US firms' global value chain links. Based on the transcripts of earnings conference calls, I adapt a text-based method to construct and validate new measures of trade policy shocks faced by individual US firms. Estimation results with the trade policy measures show that high TPU deters capital investment and induces temporary stockpiling. I then evaluate the impact of TPU on firms' reliance on foreign relationships. Using firm-level data on global supply chain relationships in 2010-19, I find that TPU is negatively associated with US firms' foreign customer fractions. The effects are more pronounced on downstream producers than upstream producers. By contrast, there is no association between TPU and foreign supplier fractions, probably due to the firms' additional offshoring behavior during the US-China trade war.
Dynamic Effects of Trade Policy and Capital Control: A Terms-of-Trade Manipulation Perspective
Abstract: This paper studies the interaction between trade policy and capital control policy from a terms-of-trade manipulation perspective. I extend the dynamic two-country multi-good endowment economy in Costinot, Lorenzoni, and Werning (2014) with trade taxes/subsidies. Home country chooses optimal taxes on all tradable goods and international capital flows in order to maximize domestic welfare, while the foreign country is passive. When only good-specific trade taxes/subsidies are available, Home has an incentive to manipulate tariffs to depreciate its real exchange rate, if it has a faster-growing endowment than the Foreign. Moreover, I find that taxing capital inflow/subsidizing capital outflow is equivalent to a uniform reduction in gross trade tariffs on all goods. There is no need for capital controls if the government can get access to good-specific tariffs/subsidies.
Work in Progress
Trade Finance and Transportation Modes, with Adina Ardelean and Volodymyr Lugovskyy