Working Paper: NBER ID: w29051
Authors: Lorenzo Caliendo; Fernando Parro
Abstract: This chapter reviews a recent body of theoretical and empirical work that studies the normative and positive aspects of trade policy. We start by presenting reduced-form evidence of the effects of trade policy in the presence of supply-chain linkages, on the short-run and persistent effects of trade policy across local labor markets, and on the effects of trade policy uncertainty on employment and firms. We describe the shift-share method for trade policy analysis, discuss the interpretation of the estimated effects, and provide a theoretical foundation. We then describe new quantitative frameworks, methods, and data used to study the aggregate and distributional effects of trade policy in general equilibrium. We discuss how to take into account supply-chain linkages, local labor markets, and different sources of dynamics. As an illustration, we quantify the aggregate and distributional effects of the 2018 trade war between the United States and its trading partners. Finally, we present recent theoretical insights on optimal unilateral trade policy with firm and product heterogeneity in the context of large and small open economies with perfectly and imperfectly competitive product markets. We also discuss how optimal trade policy is shaped by the presence of multiple sectors, intermediate goods, and supply-chain linkages. We close the chapter by discussing the scope of future research.
Keywords: No keywords provided
JEL Codes: F1; F10; F11; F12; F13; F14; F15; F16; F19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tariff increases (F13) | changes in local labor markets (J49) |
| uncertainty surrounding trade policy (F13) | negative impact on investment growth rates (F64) |
| tariffs (F13) | pass-through to domestic prices (F16) |
| trade policy changes (F13) | impact on global value chains (F69) |
| tariff changes (F13) | different outcomes in wages and employment (J79) |
| trade policy changes (F13) | impact on US exports and manufacturing employment (F69) |