Trade Policy and Antitrust: Do Consumers Matter to Legislators?

We provide one of the first efforts to measure the importance of consumer preferences in legislators' trade policy decisions by estimating the degree to which the level of antitrust enforcement in the legislator's state impacts his or her vote on free trade agreements. To the extent that antitrust and trade liberalization are both viewed as pro‐consumer in nature, we would expect to see a positive relationship between antitrust enforcement in their legislative district and Congressional votes in support of trade liberalization. We find evidence suggesting that consumer preferences do play a role in legislative decisions on trade policy.     

The Effects of Trade Liberalization between Heterogeneous Countries on Endogenous Mergers

This paper examines the effects of trade liberalization on merger behavior. We endogenize merger choice among owners in an oligopolistic industry in asymmetric countries to analyze the consequences of trade cost reductions on competitiveness and welfare. In this context, the non‐cooperative game supports asymmetric market structures. We also find that trade liberalization is not necessarily pro‐competitive in countries with the competitive advantage, even if trade costs are completely abolished. Moreover, the tariff‐jumping explanation of international mergers does not necessarily apply. The welfare analysis shows that merger behavior can significantly alter any gains from liberalization. Countries should consider enforcing competition in regional agreements. Specifically, to avoid a reduction in domestic welfare following trade‐liberalizing reductions in trade costs, a high‐cost country's optimal policy may be to ban international mergers.     

Unity versus Collaboration: Construction of China's Belt and Road Free Trade Agreement 2.0 Network

In the context of the United States prioritizing bilateral as well as trilateral trade agreements and China's regional economic integration strategy based on the Belt and Road (B&R) Initiative, the B&R free trade agreement (FTA) and the US–European–Japanese FTA (UEJFTA) have become the two regional economic integration processes with the greatest potential impact on the world economic landscape. The present paper examines the game situation as well as the economic effects of China's B&R‐FTA 2.0 network against the United States' UEJFTA to study the optimization of China's B&R FTA system. By constructing a four‐country extended game model under a two‐part expansion, we find that an increase in members will promote the welfare of each country when there is a single regional trade agreement; the potential member countries tend to choose larger organizations for higher economic benefits when there are several regional trade agreements. Our quantitative simulation shows that promoting the construction of the FTA 2.0 network based on the B&R can significantly alleviate the impact of FTA entered into by the United States with its major trading partners.     

Abenomics and Japan's Trade Policy in a New Era

Trade policy, in particular, the Trans‐Pacific Partnership Agreement (TPP), has been a centerpiece of the Abe administration's economic strategy. The TPP's contributions to Japan's growth strategy include: (i) creating trade and investment opportunities abroad for Japanese companies through ambitious liberalization targets; (ii) advancing domestic reforms – with the largest service and agricultural liberalization commitments to date; and (iii) increasing bargaining leverage in other trade negotiations. But the domestic reform goals of Abenomics in agriculture have come up short due to opposition from domestic lobbies. American trade politics – which culminated in the US withdrawal from the TPP – have upended the goals of trade policy under Abenomics. Japan's best option in this new environment is to deliver on high quality, multi‐party trade agreements: concluding negotiations with Europe; scaling up the ambition of Regional Comprehensive Economic Partnership; and salvaging a TPP 11. The merits of a bilateral free trade agreement with the USA will depend on how the Trump administration operationalizes its America First policy.     

Australian Trade Policy in the Twenty‐First Century

In the 1980s and 1990s, Australia moved from a protectionist trade policy to very open trade policies. This paper analyses the evolution of these policies in the twenty‐first century: first signing bilateral agreements in the 2000s and then participating in negotiation of mega‐regional agreements (TPP/CPTPP and RCEP). To some extent these shifts have reflected stasis in the World Trade Organisation (WTO) and its inability to make agreements on new areas. Underlying drivers of Australia's beyond‐WTO trade agreements have been the fragmentation of trade along global value chains and the emergence of new trade technologies associated with the spread of the internet.     

Accounting for the China–US Trade Imbalance: An Ownership‐Based Approach

This paper focuses on measuring the trade imbalance between China and the United States (US) within the framework of the ownership‐based approach. It extends the baseline model developed, respectively, by NAS, Julius, and BEA into a three‐country framework, consisting of the domestic economy, the foreign economy, and the rest of the world. The results of the study show that the non‐US foreign direct investment in China is mostly responsible for China's trade surplus with the US. As a result, China's ownership‐based trade surplus is surprisingly small relative to the conventional measure.     

Managed trade: The US–Mexico sugar suspension agreements

Under the 1994 North American Free Trade Agreement, Mexican sugar producers were ultimately granted free access to the US sugar market, while all other suppliers, including US refiners, were subject to supply quotas. Following a surge in imports of Mexican sugar, the American Sugar Coalition initiated anti‐dumping and countervailing duty (ADCVD) proceedings against Mexico in early 2014. In December 2014, the ADCVD cases were halted as a result of two suspension agreements negotiated between the US and Mexico. This paper contributes to a small number of empirical studies that have estimated the impact of suspension agreements. We measure the impacts of the ADCVD filings and the suspension agreements on US domestic raw and refined prices, the raw‐to‐refined margin and the quantity and composition of sugar imports from Mexico. Results suggest US raw sugar prices increased by 3¢ per lb. (14%) under ADCVD proceedings, equivalent to an ad valorem tariff between 40% and 50%, while the suspension agreements increased US raw sugar prices by 5¢ (70% tariff equivalent). US refined sugar prices increased by similar amounts under the ADCVD proceedings and the suspension agreements (4.5¢ per lb.). Ultimately, both the ADCVD proceedings and the suspension agreements significantly reduced sugar imports from Mexico. US sugar refiner economic welfare hinges critically on the quantity and composition of raw sugar imports. As such, refiner revenue, following the ADCVD filings and suspension agreements, is estimated to have declined by 16%, relative to a free trade environment.     

BILATERALISM AND FREE TRADE*

We study a setting with many countries; in each country there are firms that can sell in the domestic as well as foreign markets. Countries can sign bilateral free‐trade agreements that lower import tariffs and thereby facilitate trade. We allow a country to sign any number of bilateral free‐trade agreements. A profile of free‐trade agreements defines the trading regime. Our principal finding is that, in symmetric settings, bilateralism is consistent with global free trade. We also explore the effects of asymmetries across countries and political economy considerations on the incentives to form trade agreements.     

US Foreign Direct Investment in East Asia: Strategy and Policy Issues

East Asian trade and investment policies have attracted US investment into the region, but these policies should be fine-tuned for the region to compete effectively for US investment inflow and increase their global share of US foreign direct investment. The changes should consider the needs of the US investors and East Asia's own economic development. Bilateral free trade agreements with the US are the likely channel for these changes, but the question is whether East Asia is ready for a comprehensive and deep liberalization. East Asia should work toward a regional investment policy framework to facilitate and expand the regional production network developed by the US foreign direct investment.     

Internet Technology and the Extensive Margin of Trade: Evidence from eBay in Emerging Economies

Online platforms such as eBay offer technologies that make it easier for firms to export. This paper dissects a new firm‐level dataset that covers sales made through eBay by sellers based in 21 emerging economies to provide a new lens through which to look at the effect of trade costs on the extensive margin of trade. Comparing eBay sellers with “offline” firm‐level data from the World Bank's Exporter Dynamics Database allows us to test whether the observed trade patterns on eBay fit with the trade‐liberalization predictions of heterogeneous‐firm models. We find that eBay firms export to more destinations, suggesting low destination‐specific fixed costs on eBay. We then show that the distribution of export destinations across eBay sellers is well approximated by a balls‐and‐bins model of frictionless trade, suggesting eBay indeed lowers fixed export costs. Finally, we compare the gravity of eBay with that of offline trade and find geographic distance, languages, and trade agreements to matter less for online trade.     

Trade and civil conflict: Revisiting the cross‐country evidence

We revisit and expand the evidence on the impact of trade shocks on intra‐state conflict by using a large sample of developing countries in the 1960–2010 period. The results suggest that increases in the price of a country's exported commodities raise the country's risk of civil conflict and its duration. The effect on conflict risk is mainly driven by the price of point‐source commodities, in line with the rapacity effect theory of conflict. Intense trading with contiguous countries is associated with lower duration of conflict, consistent with the idea that such trade reduces the incentive of these countries to fuel conflict in their neighbor. Trading with neighbors is also associated with a lower risk of conflict when such trade occurs under trade agreements. On the other hand, we find no support for the opportunity cost theory via exported and imported commodities, nor via the economic cycle in export markets. We also identify a number of conditions under which the changes in the value of exported commodities cease to matter for conflict probability.     

THE IMPACT OF TRADE AND INVESTMENT AGREEMENTS ON AUSTRALIA'S INWARD FDI FLOWS

International trade and investment agreements are one of the primary instruments of global financial liberalisation. They are enacted to enhance the flows of foreign direct investment (FDI) between signatories by reducing regulatory barriers to investment; promoting stable host investment environments; and guaranteeing investors against non‐commercial risk. As a net capital importer, Australia has sought to attract FDI through participation in such accords since the early 1980s. This paper examines the determinants of Australia's inward FDI flows—focussing specifically on the effects of trade and investment agreements. Using panel data, we find that both bilateral trade and bilateral and multilateral investment agreements attract FDI flows into Australia, thereby indicating that the policy of enticing FDI through participation in these accords is quite possibly effective.     

Revisiting the link between PAC contributions and lobbying expenditures

Data on campaign contributions of PACs (political action committees) in the US does not contain the PACs' issues of concern. Additionally, while recent US lobbying data details the issues of concern for an interest group, it does not detail the Congressional representatives lobbied by the interest group. Expanding the time-frame of earlier work, I confirm that PACs engaging in lobbying and campaign contributions account for the majority of such political money despite representing a small minority of all PACs. I show how this allows the construction of a novel dataset that decomposes representative-specific contributions across issues as well as issue-specific lobbying expenditures across representatives. This decomposition can qualitatively affect results regarding the relationship between political money and Congressional voting behavior on trade policy.     

Trade‐Induced Unemployment: How Much Do We Care?

It is a common perception that a government, especially in the face of elections, is particularly sensitive to the presence of trade‐induced unemployment. In this paper, I ask: how much weight does the incumbent politician actually attach to unemployment resulting from trade? To answer, I build a model that captures government's sympathy to trade‐affected workers and allows me to decompose the channels through which trade‐induced unemployment affects the level of sectoral protection chosen by a politically‐driven incumbent official. I provide empirical evidence that the US government is very sensitive to the presence and the magnitude of trade‐induced unemployment. Specifically, I estimate the weight that the office holder attaches to the welfare of trade‐affected workers to be positive, significant, and four times larger than the weight on the welfare of those who are not affected by trade.     

Free Trade Agreements and Domestic Politics: The Case of the Trans‐Pacific Partnership Agreement

What is the role of domestic politics in facilitating or constraining a government's decision to participate in free trade agreements (FTAs)? This paper seeks to answer this question by focusing on the domestic politics in Japan over the Trans‐Pacific Partnership Agreement (TPP). In particular, we ask why the opposition to the TPP encompasses a much broader segment of society than is predicted by trade theorems. We show that a broader protectionist coalition can emerge through persuasion and policy campaigns by the elites, in particular, powerful protectionist interests expending resources to persuade the uncertain public.     

Is World Trade Becoming More Regionalized?*

The rise in intraregional trade shares and the proliferation of regional trade agreements does not necessarily mean economies excluded from those agreements are harmed. Trade data show that the share of each region's GDP that is traded extraregionally has been growing steadily following its fall in the 1930s. That is, the rapid growth of OECD countries' trade among neighbors has been accompanied by (albeit somewhat less rapid) growth in extraregional trade. This does not constitute proof that regional agreements benefit outsiders, but it at least throws doubt on the opposite conclusion.     

Trade,transport costs and trade imbalances: An empirical examination of international markets and backhauls

The US trade deficit has been growing for over 25 years and has been accompanied by enlarging freight rate differentials. While traditional models of trade have ignored these gaps assuming symmetry across all bilateral trade costs, the specific linkages between trade imbalances and international transportation costs have remained unexplored. Given the current trade policies, the implications arising from the endogenous adjustment of bilateral transport costs to policy-induced changes in the US trade deficit are of particular importance. To break new ground on this issue, we develop and estimate a model of international trade and transportation that accounts for the effects of persistent trade imbalances. The theoretical results are supported by our empirical analysis and indicate that bilateral transport costs adjust to a country's trade imbalance. The implication is that a unilateral import policy, for example, will cause spillover effects into the bilaterally integrated export market. To illustrate, we use our empirical results to simulate the anticipated spillover effect from the Chinese ban on waste imports. We find that China's ban and the projected 1.5% rise in the US trade deficit will lead to not only a 0.77% reduction of transport costs charged on US exports to China but also a 0.34% increase in transport costs on US imports from China.     

Impact of tariff rates on the probability of trade relationship survival: Evidence from ASEAN+6 manufactured goods

This article explores the links between imported trade relationships, their duration and tariff rates. We use survival analysis to investigate how the probability of trade relationship survival is affected by the difference in the tariff rates. We use the ASEAN+6 as the basis of our report and consider a total of 89 trading partners for manufactured goods from 1996 to 2011. Our findings are as follows. First, low‐tariff trade survives longer than high‐tariff trade of manufactured goods. Second, we find a significantly negative correlation between tariff rates and duration, and regional trade agreements help prolong the length of trade relationships. Third, the hazard ratios of intraregional differentiated goods and the parts and components trade are lower. We have also obtained robust results for distinct specifications through consideration of production networks and Rauch's product classification. Finally, we believe that these findings could be used as a reference for other economic organizations working toward the diminution of tariff rates.     

Regional Trade Agreements and Cross‐border Lobbying: Empirical Evidence from the Canada–US Free Trade Agreement Negotiations

This paper documents participation of special interest groups in negotiations of the Canada–US Free Trade Agreement. Using data on the tariff reduction schedules mandated by the agreement, it shows that industries represented by strong lobby groups were faced with more favorable tariff reduction paths in both countries: phase‐out periods were longer at home and shorter in the partner country. This result provides evidence on the involvement of industry lobbying in negotiation of regional trade agreements and suggests that countries negotiating trade agreements are responsive to the interests of lobbying groups from across the border. Both results provide important implications for the political economy theory of trade agreements.     

Winning or losing in investor‐to‐state dispute resolution: The role of arbitrator bias and experience

When an investor sues a state for alleged breaches of its obligations under an investment treaty or a trade agreement with investment provisions, all that should matter for who wins the case are the merits of the claim itself. Alas, investor‐to‐state dispute settlement (ISDS) does not take place in a vacuum. Such cases are decided by a tribunal typically consisting of three arbitrators, one each nominated by the two parties while the president is mutually agreed upon. We demonstrate that the kind of involvement of these arbitrators in previous ISDS cases matters for the case under dispute. Specifically, we show that what we label the presidents' pro‐investor appointment bias—the number of times they have previously been nominated by an investor minus the number of times they have represented respondent states—raises the likelihood that an investor wins an ISDS case. The same holds for the pro‐investor appointment bias of state‐appointed arbitrators. Given the president's crucial role, the main implication of our findings is that presidents should be drawn from among those who have not systematically represented more one side than the other in previous cases.