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 networks 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 the 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 exporting can generate persistence of the magnitude that I find in the data. Finally, I show that taking both contemporaneous and persistent downstream impacts into account substantially alters the welfare implications of upstream tariffs.
Lydia Cox, Gernot Müller, Ernesto Pasten, Raphael Schoenle, and Michael Weber. Working Paper. “Big G”.Abstract
“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.
There is substantial variation in U.S. tariff rates across varieties within narrowly defined products (goods). For example, tariff rates on handbags range from 5 to 16 percent, depending on their material. In this paper, we document the presence, historical origins, and consequences of this pattern. Using a newly constructed dataset on legislated tariffs that covers all major trade agreements back to the 1930 Smoot-Hawley Act, we show that this within-good variation in tariffs originated in trade agreements made in the 1930s and 40s and has persisted over time. Early trade agreements were made primarily with other high-income nations, and concessions were made on the specific varieties of goods that those countries produced. Instead, later GATT and WTO tariff negotiations had the broader focus of bringing down the average level of tariffs. One important consequence of this hysteresis in trade policy is that, today, tariffs are systematically higher on cheaper varieties of goods relative to their more expensive counterparts. We show that failing to take this heterogeneity into account substantially alters the distributional consequences of trade policy.
We present a newly digitized dataset of legislated tariff rates in the United States dating back to the Smoot-Hawley Tariff Act of 1930. The dataset contains all tariff rates from 1930 to 1946, all rates after each round of GATT negotiations through 1988, and all rates since 1989.