The Role of International Trade Agreements During Economic and Policy Crises: Evidence From U.S. Firm Dynamics

Jeronimo Carballo, Kyle Handley and Nuno Limão

Review of International Economics, 2025, vol. 33, issue 5, 1035-1065

Abstract: We use U.S. firm exports from 2003 to 2011 to establish facts about export dynamics in a crisis marked by economic and policy uncertainty. Uncertainty about foreign income, trade protection, and their interaction dampen export investments, which can be partially offset by trade agreements that mitigate policy uncertainty. We find a significant role for uncertainty in explaining the trade collapse in the 2008 crisis and partial recovery in its aftermath. We find that the negative effects worked (1) through the extensive margin, (2) in destinations without preferential agreements with the United States, and (3) in industries with higher potential protection. U.S. exports to nonpreferential markets would have been 6.5% higher under an agreement—equivalent to an 8% foreign GDP increase.

Date: 2025
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