The Long-Term Impact of Steel Tariffs on U.S. Manufacturing
Media Coverage: Financial Times, Tax Foundation, Econbrowser, Noahpinion, Cato
In this paper, I study the long-term effects that temporary upstream tariffs have on downstream industries. Even temporary tariffs can have cascading effects through production networsk when placed on upstream products, but to date, little is known about the long-term behavior of these spillovers. Using a new method for mapping downstream industries to specific steel inputs, I estimate the effect of steel tariffs enacted by President Bush in 2002 and 2003 on downstream industry outcomes. I find that upstream steel tariffs have highly persistent negative impacts on the competitiveness of U.S. downstream industry exports. Persistence in the response of exports is driven by a restructuring of global trade flows that does not revert once the tariffs are lifted. I use a dynamic model of trade to show that the presence of relationship-specific sunk costs of trade can generate persistence of the magnitude that I find in the data. Finally, I show that taking both the contemporaneous and persistent downstream impacts into account substantially alters the welfare implications of upstream tariffs.
with Gernot Muller, Ernesto Pasten, Raphael Schoenle, and Michael Weber
Revise and Resubmit at the Journal of Political Economy
"Big G" typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the U.S. federal government and establish five facts. First, government spending is granular; that is, it is concentrated in relatively few firms and sectors. Second, relative to private spending its composition is biased. Third, at the contract, firm and sectoral level moderate persistence characterizes spending. Fourth, idiosyncratic variation dominates fluctuations in spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism and aligns the model predictions with the empirical evidence: Fiscal shocks hardly impact inflation, little crowding out of private expenditure occurs, markups can be either pro-cyclical or counter-cyclical, and the multiplier tends to be larger compared to a one-sector benchmark.
The Regressive Nature of the U.S. Tariff Code: Origins and Implications
with Miguel Acosta
Media Coverage: Trade Talks Podcast
The U.S. tariff code has a surprising and little-known feature: tariffs are systematically
higher on lower-end versions of goods relative to their higher-end counterparts. For
example, a handbag made of reptile leather has a tariff rate of 5.3 percent, while a
plastic-sided handbag has a tariff rate of 16 percent. In this paper, we document the
presence, historical origins, and consequences of this regressive pattern. Regressive
tariffs are present throughout the tariff code, but are especially pervasive in consumer
goods categories, where tariffs are 4 percentage points higher, on average, for low-value
varieties. Using a newly constructed dataset on legislated tariffs that covers all major
trade agreements back to the 1930 Smoot-Hawley Tariff Act, we show that this variation
in rates across varieties largely originated in trade agreements made in the 1930s and
40s and has persisted over time. Welfare estimates suggest that the regressive nature
of tariff rates on consumer goods has important distributional consequences.
Work in Progress
Buy American Restrictions on Government Purchases: Implications for U.S. Manufacturing
with Miguel Acosta
The U.S. federal government has had regulations in place for almost a century to restrict the use of foreign content in its purchases. We study how these domestic content restrictions---in particular, the Buy American Act of 1933 (BAA)---affect industry outcomes, and whether they achieve their policy objectives of bolstering domestic production and providing insulation from foreign shocks. To do this, we analyze firm-level data on import shipments and government contracts, and exploit arbitrary thresholds that determine the stringency of BAA restrictions. At the firm level, we find no evidence that domestic content restrictions spill over into a firm's overall production processes; instead, firms create separate, domestic, supply lines solely for their convernment sales. Second, we find that this inefficiency magnifies industry responses to global shocks, in stark contrast to the policy objective of insulation. In all cases, the effect of BAA restrictions is modulated by the government's share of an industry's production.