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Trade Diversion and Jobs: Evidence from Mexican Municipalities

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Listed:
  • Rodriguez Castelan, Carlos

    (World Bank)

  • Vazquez, Emmanuel

    (Center for Distributive, Labor and Social Studies (CEDLAS), Instituto de Investigaciones Económicas, Facultad de Ciencias Económicas, Universidad Nacional de La Plata)

  • Winkler, Hernan

    (World Bank)

Abstract

This paper examines the local effects of the 2018–19 U.S.-China trade disruptions on Mexico. Combining detailed municipal-level customs data with U.S. tariff schedules, it estimates that municipalities with greater export concentration in products targeted by U.S. tariffs on China (hereafter, tariff exposure) experienced significantly larger nearshoring dividends. An increase of 1 percent in tariff exposure led to a 4.3 percent increase in municipality-level exports to the United States. These export gains translated into broad labor market improvements: total labor income rose by 5.6 percent for each 1 percent increase in tariff exposure, driven by job creation rather than wage growth as average earnings remained unchanged. Beyond job quantity, the shock improved job quality: each 1 percent increase in tariff exposure reduced labor informality by 0.25 percentage points, with newly created jobs disproportionately being formal. Effects were driven primarily by manufacturing but extended to services through local spillovers. The findings indicate that trade policy changes between major economies can significantly reshape the spatial distribution of economic activity and the quantity and quality of jobs in third-party countries.

Suggested Citation

  • Rodriguez Castelan, Carlos & Vazquez, Emmanuel & Winkler, Hernan, 2026. "Trade Diversion and Jobs: Evidence from Mexican Municipalities," IZA Discussion Papers 18791, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18791
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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