Casualties of Trade Wars: Distributional Costs of the Section 301 Tariffs Against China
Between 2018 and 2020, the United States imposed massive new tariffs under a variety of trade laws, most notably the Section 301 tariffs against China. This new protection is extensive in magnitude and breadth; tariffs range from 10 to 30 percent and cover 50 percent of US consumer imports from China and 16 percent of total US consumer imports. Using data from the Consumer Expenditure Survey, I estimate that these tariffs cost the average US household at least $160 per year. I further find that the new taxes are highly regressive; the lowest income consumers pay more than 1.2 percent of their after-tax income to fight these trade wars, while the wealthiest consumers pay just 0.18 percent of their after-tax income. I find additional evidence that women and parents are paying an unfair share of efforts to put America first. While the current Administration has proposed to raise taxes on the wealthy to make the US tax system fairer, they should also eliminate tariffs which place undue burdens on the most vulnerable in our society.
Casualties of Trade Wars (with Benjamin Liebman)
Abstract: Although trade wars have existed throughout modern history, there is little empirical evidence as to how countries choose which industries to target for retaliatory tariffs. We develop a political economy model of trade policy to explain a country’s choice of product for retaliation and test the implications of this model using the choices of seven countries in two retaliation episodes: (1) the US imposition of steel and aluminum tariffs in 2018 and (2) the US passage of the Continued Dumping and Subsidy Offset Act (CDSOA) in 2000. The empirical results from a binary choice regression indicate that countries are more likely to sanction products with higher trade values and those in which they can extract terms-of-trade welfare, suggesting that trade wars move countries back to a terms-of-trade driven prisoner’s dilemma equilibrium. We find a significant amount of heterogeneity in the degree to which countries consider the political importance of the industry when developing their retaliation list; while countries such as the EU and Canada clearly targeted politically important industries in 2018, we find little evidence that emerging markets did so. There is also little evidence that the EU and Canada targeted politically important industries in retaliation against the CDSOA.
Article 21.5 DSU Appellate Body Report United States—Measures Affecting Trade in Large Civil Aircraft (Second Complaint): Spillovers from Defense R&D Add to the Tug-of-War Between Panels and the WTO Appellate Body (with Jennifer Hillman)
Abstract: The March 2019 release of the Appellate Body’s compliance report in United States– Measures Affecting Trade in Large Civil Aircraft (Second Complaint) marks yet another chapter in the ongoing Boeing-Airbus dispute. While raising numerous new and old subsidy issues, this paper focuses on one specific aspect, the evaluation of the financial contributions and benefits associated with the Department of Defense (DOD) R&D procurement contracts. The paper describes the differing views taken by the panels compared to the Appellate Body. It highlights two issues that led to an extremely lengthy proceeding: 1) the black or white nature of the decision regarding the characterization of contracts which have features of both purchases of services and joint ventures; and 2) the difficulty in demonstrating a financial contribution flowing from payments for R&D for military systems to Boeing’s civil aircraft production. It concludes that this case represents a failure of the WTO dispute settlement system and underscores flaws in the ASCM in that after fifteen years of litigation, no determination was made as to whether or not the DOD R&D contracts examined here constituted impermissible subsidies.