Import Protection, Business Cycles, and Exchange Rates : Evidence from the Great Recession
This research estimates the impact of macroeconomic fluctuations on import protection policies over 1988:Q1-2010:Q4 for the United States, European Union, and three other industrialized economies. First, estimates on a pre-Great Recession sample provide evidence of three key relationships for the US and EU. Increases in domestic unemployment rates and real appreciations in bilateral exchange rates led to substantial increases in antidumping and related forms of import protection. Furthermore, economies historically imposed these bilateral import restrictions on trading partners going through their own periods of weak economic growth. Second, estimates from the pre-Great Recession model predict a major trade policy response during 2008:Q4-2010:Q4, given the realized macroeconomic shocks. New US and EU trade barriers were projected to cover up to an additional 15 percentage points of nonoil imports, well above the baseline level of 2-3 percent of import coverage immediately preceding the crisis. Third, re-estimating the model on data from the Great Recession period illustrates why the realized trade policy response differed from model predictions based on historical data. While exchange rate movements played an important role in limiting new import protection, the US and EU also "switched" from their historical behavior during the Great Recession and shifted new import protection toward trading partners experiencing economic growth and away from those that were contracting.
Summary: | This research estimates the impact of
macroeconomic fluctuations on import protection policies
over 1988:Q1-2010:Q4 for the United States, European Union,
and three other industrialized economies. First, estimates
on a pre-Great Recession sample provide evidence of three
key relationships for the US and EU. Increases in domestic
unemployment rates and real appreciations in bilateral
exchange rates led to substantial increases in antidumping
and related forms of import protection. Furthermore,
economies historically imposed these bilateral import
restrictions on trading partners going through their own
periods of weak economic growth. Second, estimates from the
pre-Great Recession model predict a major trade policy
response during 2008:Q4-2010:Q4, given the realized
macroeconomic shocks. New US and EU trade barriers were
projected to cover up to an additional 15 percentage points
of nonoil imports, well above the baseline level of 2-3
percent of import coverage immediately preceding the crisis.
Third, re-estimating the model on data from the Great
Recession period illustrates why the realized trade policy
response differed from model predictions based on historical
data. While exchange rate movements played an important role
in limiting new import protection, the US and EU also
"switched" from their historical behavior during
the Great Recession and shifted new import protection toward
trading partners experiencing economic growth and away from
those that were contracting. |
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