Trade Policy is Real News: A quantitative analysis of past, current, and future changes in U.S. trade barriers

George Alessandria and Carter Mix
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Carter Mix: University of Rochester

No 545, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We evaluate the aggregate effects of changes in trade barriers in a model in which trade re- sponds gradually to changes in trade policy and trade policy changes are gradual. Our model offers insights into how changing trade barriers affects the economy and how business cycle shocks can affect trade. We find that a fall in current trade barriers has an expansionary effect while a decline in future trade costs can be recessionary on impact. We find that cancelling agreed upon declines in barriers to be expansionary in the short-run but substantially lowers growth over the medium run. We also find that even controlling for composition, trade tends to lag the recovery in demand for tradables. We capture the growth and trade factors driving the economy with movements in productivity, investment efficiency, the labor wedge, and trade costs. We estimate the model to match the key time series on trade integration and business cycles since 1970. Our estimation yields a path for current and expected future trade barriers and allows us to decompose the source of aggregate fluctuations and integration. We find that trade barriers have been expected to decline but that these declines have been repeatedly delayed. We find that aside from these delays that the outlook on future trade barriers did not change much between 2012 and 2016, but deteriorated substantially since. We also decompose the sources of the trade and growth slowdowns since the Great Recession. We show that data on export participation is helpful to identify future trade costs when exporting is a dynamic decision. We use our model to consider the impact of alternative unilateral and bilateral changes in trade barriers being contemplated.

Date: 2019
New Economics Papers: this item is included in nep-dge, nep-int and nep-mac
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Citations: View citations in EconPapers (1)

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