Review for Dec 13 class 經濟四 B07303059 呂姵茵

Trump’s trade war is a good example to study tariff’s impact on

trade for many reasons. First, most of the tariff announcements were
abrupt, so it’s hard for people to anticipate and respond. In addition, the
tariffs are large enough to create variation across products, time and
countries so that economists can make causal argument. Most of
trump’s tariff policies were carried out in 2018, including charging high
tariff on goods imported from china like solar panels, washing machines,
aluminum, iron and steel. Retaliatory tariffs were also enacted on trading
partners like china, Russia, Mexico and European union.
According to research, almost all of the tariffs from trump’s trade
war are passed to US importers and customers. This is quite surprising
because according to trade policy theory, for a large economy like US,
tariff should drive down foreign price, so a fraction of tariff should be
paid by exporters, i.e. terms of trade exist. We can see from the long
difference that the price received from exporters are almost unchanged
after imposing the tariff, so US importers and customers bear the price.
If we want to see how a specific event affects the outcome over dynamic
horizon, we can use event study, considering the HTS10-time and
country time fixed effect, while also adding a treatment month indicator.
Some research believe that the motivation of trump’s trade war is
domestic electoral success, not the sector-specific lobbying that results
in most trade protectionism. The evidence are that lobbying and tariff
protection have negative correlation, electorally competitive US counties
are more protected by US tariffs, and electorally more Republican
counties are more retaliated by other countries. According to Flaaen,
Hortacsu, Tintelnot (2020), after products are tariffed, firms often move
production to countries that aren’t affected by the tariff. In this case,
Korean washing machines are tariffed by the US, so firms move
production to countries like china, Thailand and Vietnam. Therefore, we
can see that tariff can’t make firms move production to US or increase
employment. In addition, washing machines and dryers are
complementary goods. although dryers weren’t tariffed, washing
machines were tariffed, according to the study, dryers’ prices go up
similarly as a response to washing machine tariffs. Therefore we can
conclude that tariffs on a certain good will affect the price of its
complementary goods.