Event: SOE Seminar Series: Rodney Ludema, Georgetown University
Rodney Ludema, Georgetown University, Department of Economics and School of Foreign Service.
Seminar Title: The political economy of protection in GVCs: Evidence from Chinese micro data
This paper explores the political economy of import protection in a setting where imports may contain a country’s own domestic value added (DVA) via domesticallyproduced inputs that get exported and used in foreign downstream production. We show that domestic upstream and downstream producers are generally allies in favor of protection, but this alliance may weaken as DVA increases, because a home tariff on finished goods decreases foreign demand for home inputs. Empirically, we examine detailed discriminatory trade policies of 27 countries plus the EU toward China and use Chinese transaction-level processing trade data to construct a measure of DVA. We also measure input customization. We find that both upstream and downstream political organization increase downstream protection, but the effect of the former is smaller when inputs are customized and DVA as a share of final imports from China is larger. Tariffs on products containing inputs that are neither customized nor politically organized appear to be unaffected by the DVA share.