Trade Diversion Effects from Global Tensions—Higher Than We Think
Mengqi Wang and
Swarnali Hannan
No 2023/234, IMF Working Papers from International Monetary Fund
Abstract:
The paper builds a unique industry-level dataset by combining Mexico’s nationally sourced inputoutput data (INEGI) with cross-country sources (WIOD, UN Comtrade). Using this dataset to exploit higher supply linkages across a larger number of industries than what is available in cross-country sources, the paper estimates the trade diversion effect on Mexico’s exports to the U.S. from two episodes, with a focus on the first: the U.S.-China trade tension in 2018 and the U.S. sanctions on Russia in 2014. Difference-in-differences, local projections and few other empirical methodologies are used. For the first episode, the paper finds higher trade diversion effects than estimates in literature. Output tariff plays an important role, and there is some evidence of a positive impact through downstream tariffs. The effects are stronger when nationally sourced input-output data is used compared to those derived from cross-country sources. Importantly, the magnitude of trade diversion across industries does not depend on Mexico’s industry-level trade exposure to the U.S., but rather on the U.S. tariff changes on Chinese goods, the decrease in imports from China, product substitutability with Chinese products, and (weakly) on Mexico’s GVC integration. Similarly, for the second episode, the paper finds positive trade diversion effects. Overall, the findings suggest that trade diversion effect might be higher than previously thought and the proper accounting of dataset and supply linkages makes a difference.
Keywords: input-output linkages; trade diversion; U.S.-China trade tensions; trade diversion effect; magnitude of trade diversion; input-output datum; summary statistics of tariff exposure; change dummy; aggregate trade diversion effect; export share; Tariffs; Exports; Imports; Trade tensions; Valuation, origin and classification; Global (search for similar items in EconPapers)
Pages: 62
Date: 2023-11-10
New Economics Papers: this item is included in nep-cis, nep-cna, nep-int and nep-tra
References: Add references at CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=539680 (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2023/234
Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm
Access Statistics for this paper
More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().