Alan Spearot, University of California

"Everybody Fights an American War": Market Access and Uncertainty during the US-China Trade War"

Abstract

During the 2018-2019 US-China trade war, parties levied large tariffs against each other. We document that for many affected products, the targeted exporter commanded a small (and even zero) share of the subject’s import market. We leverage this fact, and a long panel of confidential establishment data from Mexico, to examine the impact of the trade war on firms and workers in a third country. We use a shift-share design and annual differences, which allows us to (1), use exhaustive fixed effects to control for substantial pre-trends in outcomes that correlate with future tariff cuts; (2), approximate the trade war’s demand shocks for the US and Chinese markets; and (3), isolate and interpret the predicted impact of tariffs when they are applied against products with negligible (or zero) export supply. We find a substantial response to both countries’ tariffs when import shares are negligible, though in opposing directions, and only in the composition of employment. Higher US tariffs against China reduce the share of direct hiring in Mexico, and higher Chinese tariffs against the US do the opposite. We interpret these effects as Mexico experiencing increased tariff uncertainty with the US, and reduced tariff uncertainty with China. We find mixed evidence for shifts in US and Chinese demand driving establishment-level outcomes in Mexico.

Joint with Brenda Samaniego de la Parra and Daniela Puggioni.

For more information about Alan Spearot and his interesting work - link to his website.

Contact person: Pablo Selaya