IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v114y2018icp96-115.html
   My bibliography  Save this article

Tariff scares: Trade policy uncertainty and foreign market entry by Chinese firms

Author

Listed:
  • Crowley, Meredith
  • Meng, Ning
  • Song, Huasheng

Abstract

We estimate how a rise in uncertainty about future tariff rates impacts firm decisions to enter into and exit from export markets. Using Chinese customs transactions between 2000 and 2009, we exploit time-variation in product-level trade policy and find that Chinese firms are less likely to enter new foreign markets and more likely to exit from established foreign markets when their products are subject to increased trade policy uncertainty. Our analysis is based on the phenomenon of “tariff echoing” – after a tariff hike in one country, another country is likely to raise its tariff on the same product. Overall, we find that if there had been no trade policy uncertainty created by the use of contingent tariffs, Chinese entry into foreign markets would have been roughly 2% higher per year. We use our model to counterfactually estimate how much entry by Chinese firms over 2001–2009 was due to future trade policy certainty provided by membership in the WTO.

Suggested Citation

  • Crowley, Meredith & Meng, Ning & Song, Huasheng, 2018. "Tariff scares: Trade policy uncertainty and foreign market entry by Chinese firms," Journal of International Economics, Elsevier, vol. 114(C), pages 96-115.
  • Handle: RePEc:eee:inecon:v:114:y:2018:i:c:p:96-115
    DOI: 10.1016/j.jinteco.2018.05.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S002219961830117X
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jinteco.2018.05.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
    2. Lu, Yi & Tao, Zhigang & Zhang, Yan, 2013. "How do exporters respond to antidumping investigations?," Journal of International Economics, Elsevier, vol. 91(2), pages 290-300.
    3. Chad P. Bown & Meredith A. Crowley, 2013. "Self-Enforcing Trade Agreements: Evidence from Time-Varying Trade Policy," American Economic Review, American Economic Association, vol. 103(2), pages 1071-1090, April.
    4. Conconi, Paola & Sapir, André & Zanardi, Maurizio, 2016. "The internationalization process of firms: From exports to FDI," Journal of International Economics, Elsevier, vol. 99(C), pages 16-30.
    5. Lyon, Thomas & Lu, Yao & Shi, Xinzheng & Yin, Qie, 2013. "How do investors respond to Green Company Awards in China?," Ecological Economics, Elsevier, vol. 94(C), pages 1-8.
    6. Thomas Chaney, 2014. "The Network Structure of International Trade," American Economic Review, American Economic Association, vol. 104(11), pages 3600-3634, November.
    7. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    8. Vandenbussche, Hylke & Zanardi, Maurizio, 2010. "The chilling trade effects of antidumping proliferation," European Economic Review, Elsevier, vol. 54(6), pages 760-777, August.
    9. Albornoz, Facundo & Calvo Pardo, Héctor F. & Corcos, Gregory & Ornelas, Emanuel, 2012. "Sequential exporting," Journal of International Economics, Elsevier, vol. 88(1), pages 17-31.
    10. Giovanni Maggi & Andrés Rodríguez-Clare, 2007. "A Political-Economy Theory of Trade Agreements," American Economic Review, American Economic Association, vol. 97(4), pages 1374-1406, September.
    11. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    12. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, September.
    13. Nuno Limão & Giovanni Maggi, 2015. "Uncertainty and Trade Agreements," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 1-42, November.
    14. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    15. Fernandes, Ana P. & Tang, Heiwai, 2014. "Learning to export from neighbors," Journal of International Economics, Elsevier, vol. 94(1), pages 67-84.
    16. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
    17. Handley, Kyle, 2014. "Exporting under trade policy uncertainty: Theory and evidence," Journal of International Economics, Elsevier, vol. 94(1), pages 50-66.
    18. Tibor Besedeš & Thomas J. Prusa, 2017. "The Hazardous Effects Of Antidumping," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 9-30, January.
    19. Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2010. "Trade Agreements as Endogenously Incomplete Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 394-419, March.
    20. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.
    21. Ahn, JaeBin & Khandelwal, Amit K. & Wei, Shang-Jin, 2011. "The role of intermediaries in facilitating trade," Journal of International Economics, Elsevier, vol. 84(1), pages 73-85, May.
    22. Kyle Handley & Nuno Limão, 2018. "Policy Uncertainty, Trade, and Welfare: Theory and Evidence for China and the United States," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 5, pages 123-175, World Scientific Publishing Co. Pte. Ltd..
    23. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 574-601, June.
    24. Chrysostomos Tabakis & Maurizio Zanardi, 2017. "Antidumping Echoing," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 655-681, April.
    25. Bown, Chad P. & Crowley, Meredith A, 2016. "The Empirical Landscape of Trade Policy," CEPR Discussion Papers 11216, C.E.P.R. Discussion Papers.
    26. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    27. Bown, Chad P. & Crowley, Meredith A., 2007. "Trade deflection and trade depression," Journal of International Economics, Elsevier, vol. 72(1), pages 176-201, May.
    28. Timoshenko, Olga A., 2015. "Product switching in a model of learning," Journal of International Economics, Elsevier, vol. 95(2), pages 233-249.
    29. Schmeiser, Katherine N., 2012. "Learning to export: Export growth and the destination decision of firms," Journal of International Economics, Elsevier, vol. 87(1), pages 89-97.
    30. Wolfgang Keller & Hale Utar, 2016. "International Trade and Job Polarization: Evidence at the Worker Level," CESifo Working Paper Series 5978, CESifo.
    31. Defever, Fabrice & Heid, Benedikt & Larch, Mario, 2015. "Spatial exporters," Journal of International Economics, Elsevier, vol. 95(1), pages 145-156.
    32. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
    33. Thomas J. Prusa, 2021. "On the spread and impact of anti-dumping," World Scientific Book Chapters, in: Thomas J Prusa (ed.), Economic Effects of Antidumping, chapter 4, pages 45-65, World Scientific Publishing Co. Pte. Ltd..
    34. Bagwell, Kyle & Staiger, Robert W, 1990. "A Theory of Managed Trade," American Economic Review, American Economic Association, vol. 80(4), pages 779-795, September.
    35. Kyle Handley & Nuno Limão, 2018. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 4, pages 89-122, World Scientific Publishing Co. Pte. Ltd..
    36. Feng, Ling & Li, Zhiyuan & Swenson, Deborah L., 2017. "Trade policy uncertainty and exports: Evidence from China's WTO accession," Journal of International Economics, Elsevier, vol. 106(C), pages 20-36.
    37. Justin R. Pierce & Peter K. Schott, 2016. "The Surprisingly Swift Decline of US Manufacturing Employment," American Economic Review, American Economic Association, vol. 106(7), pages 1632-1662, July.
    38. Giovanni Maggi & Robert W. Staiger, 2011. "The Role of Dispute Settlement Procedures in International Trade Agreements," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 475-515.
    39. Sergio Correia, 2014. "REGHDFE: Stata module to perform linear or instrumental-variable regression absorbing any number of high-dimensional fixed effects," Statistical Software Components S457874, Boston College Department of Economics, revised 18 Nov 2019.
    40. Manuel Amador & Kyle Bagwell, 2013. "The Theory of Optimal Delegation With an Application to Tariff Caps," Econometrica, Econometric Society, vol. 81(4), pages 1541-1599, July.
    41. Facundo Albornoz & Hector Calvo-Pardo & Gregory Corcos & Emanuel Ornelas, 2012. "Sequential exporting: how firms break into foreign markets," CentrePiece - The Magazine for Economic Performance 364, Centre for Economic Performance, LSE.
    42. Mostafa Beshkar & Eric W. Bond, 2017. "Cap and Escape in Trade Agreements," American Economic Journal: Microeconomics, American Economic Association, vol. 9(4), pages 171-202, November.
    43. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    44. Chad P. Bown & Meredith A. Crowley, 2010. "China's export growth and the China safeguard: threats to the world trading system?," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1353-1388, November.
    45. Chandra, Piyush, 2016. "Impact of temporary trade barriers: Evidence from China," China Economic Review, Elsevier, vol. 38(C), pages 24-48.
    46. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-837, December.
    47. Miaojie Yu, 2015. "Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms," Economic Journal, Royal Economic Society, vol. 125(585), pages 943-988, June.
    48. Robert W. Staiger & Alan O. Sykes, 2011. "International Trade, National Treatment, and Domestic Regulation," The Journal of Legal Studies, University of Chicago Press, vol. 40(1), pages 149-203.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    2. Crowley, M. A. & Exton, O. & Han, L., 2018. "Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports," Cambridge Working Papers in Economics 1839, Faculty of Economics, University of Cambridge.
    3. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    4. Meng, Ning & Milner, Chris & Song, Huasheng, 2020. "Antidumping and heterogeneous quality adjustment of multi-product firms: Evidence from Chinese exporters," Economic Modelling, Elsevier, vol. 92(C), pages 147-161.
    5. Aksel Erbahar, 2019. "Market knowledge: Evidence from importers," The World Economy, Wiley Blackwell, vol. 42(4), pages 1110-1151, April.
    6. Mau, Karsten, 2017. "US policy spillover(?) – China’s accession to the WTO and rising exports to the EU," European Economic Review, Elsevier, vol. 98(C), pages 169-188.
    7. Albornoz, Facundo & Calvo Pardo, Héctor F. & Corcos, Gregory & Ornelas, Emanuel, 2012. "Sequential exporting," Journal of International Economics, Elsevier, vol. 88(1), pages 17-31.
    8. Sandkamp, Alexander, 2020. "The trade effects of antidumping duties: Evidence from the 2004 EU enlargement," Journal of International Economics, Elsevier, vol. 123(C).
    9. Xuqian Hu & Canfei He, 2020. "Nontariff measures, trade deflection, and market expansion of exporters in China," Growth and Change, Wiley Blackwell, vol. 51(3), pages 932-953, September.
    10. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.
    11. Felbermayr, Gabriel & Sandkamp, Alexander, 2020. "The trade effects of anti-dumping duties: Firm-level evidence from China," European Economic Review, Elsevier, vol. 122(C).
    12. Esposito, Federico, 2019. "Demand Risk and Diversification through Trade," MPRA Paper 99875, University Library of Munich, Germany.
    13. Lorenzo Trimarchi, 2020. "Trade Policy and the China Syndrome," Working Papers ECARES 2020-15, ULB -- Universite Libre de Bruxelles.
    14. Federico J. Diez & Jesse Mora & Alan C. Spearot, 2016. "Firms in international trade," Working Papers 16-25, Federal Reserve Bank of Boston.
    15. Groppo, Valeria & Piermartini, Roberta, 2014. "Trade policy uncertainty and the WTO," WTO Staff Working Papers ERSD-2014-23, World Trade Organization (WTO), Economic Research and Statistics Division.
    16. Esposito, Federico, 2020. "Demand Risk and Diversification through International Trade," MPRA Paper 100865, University Library of Munich, Germany.
    17. Lili Wang & Yong Zhao, 2013. "Does Experience Facilitate Entry into New Export Destinations?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 21(5), pages 36-59, September.
    18. Cole, Matthew T. & Lake, James & Zissimos, Ben, 2021. "Contesting an international trade agreement," Journal of International Economics, Elsevier, vol. 128(C).
    19. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.
    20. Nicholas Sheard, 2014. "Learning to Export and the Timing of Entry to Export Markets," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 536-560, August.

    More about this item

    Keywords

    Trade policy uncertainty; Trade agreements; China shock; Chinese exporters; Antidumping; Information spillovers;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:114:y:2018:i:c:p:96-115. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.