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Protection forestall: Offshore firms against tariffs in their own industry

Published online by Cambridge University Press:  27 September 2022

Jieun Lee Open the ORCID record for Jieun Lee [Opens in a new window]  and
Iain Osgood Open the ORCID record for Iain Osgood [Opens in a new window]
Jieun Lee*
Affiliation:
Department of Political Science, University at Buffalo, State University of New York, Buffalo, NY 14260, USA
Iain Osgood
Affiliation:
Department of Political Science, University of Michigan, Ann Arbor, MI 48104, USA
*
*Corresponding author: Jieun Lee, Email: [email protected]
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Abstract

Firms that offshore final production should oppose trade barriers “protecting” their own industry. This pits them against onshore firms, especially when comparative disadvantage is most pronounced, and so fundamentally alters trade policy coalitions. The US-China trade war's exclusion process, where US firms could request that tariffs not be applied to a product, provides a golden opportunity to test this contention. We show that coverage by a tariff in the trade war and firm characteristics associated with offshoring—size, multinationality, and heavy imports from China—interacted to generate firm requests for exclusion from the trade war's tariffs. This finding is robust to input-sourcing and fears of export retaliation as alternative explanations, and across multiple measures of firm size, tariff coverage, and exclusion requests. We therefore test a key piece of the firm-centered model of trade politics and show its value in interpreting the US-China trade war.

Type
Research Article
Information
Business and Politics , Volume 24 , Special Issue 4: U.S.-China Trade War , December 2022 , pp. 377 - 398
Copyright
Copyright © The Author(s), 2022. Published by Cambridge University Press on behalf of V.K. Aggarwal

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