Working Paper: NBER ID: w1640
Authors: Robert S. Pindyck; Julio J. Rotemberg
Abstract: Under Section 201 of the 1974 Trade Act, a domestic industry can obtain temporary protection against imports by demonstrating before the International Trade Commission that it has been injured, and that imports have been the"substantial cause" of injury --i.e.,"a cause which is important and not less than any other cause." To date, the ITC lacks a coherent framework for selecting a menu of other factors which might be considered as causes of injury, and for weighing the effects of these other factors against those of imports.This paper sets forth a straightforward economic and statistical framework for use in Section 201 cases. This framework is based on the fact that if the domestic industry is competitive, injury can arise from one or more of three broad sources: adverse shifts in market demand, adverse shifts in domestic supply, or increased imports. We show how these sources of injury can be distinguished in theory, and statistically evaluated in practice. As an illustrative example, we apply the framework to the case of the copper industry, which petitioned the ITC for relief in 1984. Although that industry has indeed suffered injury, we show that the "substantial cause" was not imports, but instead increasing costs and decreasing demand.
Keywords: Trade Policy; International Trade; Economic Injury
JEL Codes: F13; L52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing costs (J32) | injury to the domestic copper industry (L72) |
| decreasing demand (J23) | injury to the domestic copper industry (L72) |
| imports (F14) | injury to the domestic copper industry (L72) |
| imports held constant (F14) | better performance of the domestic industry (L10) |
| adverse shifts in domestic supply (Q11) | injury to the domestic copper industry (L72) |
| adverse shifts in domestic demand (F69) | injury to the domestic copper industry (L72) |
| imports (F14) | changes in prices (E30) |
| imports (F14) | changes in profits (E25) |