Job Market Paper

Trade War, Processing Trade, and Global Value Chains      [Click here for the latest version]

Abstract: This paper studies the impact of the 2018-2019 trade war in the presence of processing trade and global value chains. In contrast to the U.S., approximately 40% of Chinese imports are processing imports of intermediate inputs used in export-oriented products. Most notably, processing imports pay zero tariffs, even during the trade war. Using monthly Chinese customs data from 2017 to 2019, I estimate the effects of China's retaliatory tariffs and find significant reductions in non-processing imports from the U.S., whereas there is no significant effect on processing imports. Motivated by the reduced-form estimation, I incorporate China's duty-free policy on processing imports in a quantitative general equilibrium model with sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the welfare and trade effects of the trade war. The model shows that the duty-free policy reduced China's welfare loss by 44%. It also shows that China's imports and exports would have decreased significantly more if processing imports had not been exempted from the tariffs. The significant changes in welfare and trade effects primarily come from industries in which processing trade is prevalent. I also find considerable spillover effects on U.S. sectoral outcomes.

Working Paper

Trade War from the Chinese Trenches      [Click here for the latest version] 

Abstract: From 2018 through 2019, the United States and China imposed a series of wide-ranging increases in import tariffs that have dramatically raised trade barriers between the two largest economies in the world. With a focus on the import side, this paper provides evidence on the impact of the trade war on China's trade quantities and prices and estimates related trade elasticities. Both Chinese import quantities and values dropped sharply following the tariffs, and there is evidence of incomplete pass-through of Chinese import tariffs in the very short run. More importantly, this paper shows that although China's non-processing imports declined sharply during the trade war, processing imports remained unaffected. The results suggest that China’s special duty-free policy on processing trade may have served as a built-in mechanism to better protect domestic firms from damage by the trade war through the global value chain channel.

Local Information Spillover and the Import Dynamic of Firms  (Draft available upon request)

Abstract: This paper provides evidence that information spillover among neighboring firms affects the import dynamic of new entrants. Using the universe of Chinese customs transaction-level data from 2000 to 2015, I obtain credible estimates showing that learning from incumbent firms is an important driver of a firm's import entry decisions and first-year import volume. The results demonstrate that a stronger market signal revealed by the incumbent neighbor's import is associated with a higher probability of entry and a larger initial import volume for the new firms. These effects are larger when more incumbent firms are present. Moreover, I find that substantial heterogeneity depends on product characteristics: Effects are more potent in less differentiated products and a firm's imported capital goods and intermediate inputs. The results highlight the benefit of firm clusters and can guide trade policy to exploit spillover effects.

Global Warming and the Economic Impact of the Belt and Road Initiative 

Abstract: This paper evaluates the impact of the Belt and Road Initiative (BRI) on trade and welfare, given the potential year-round opening of the Northern Sea Route (NSR) due to global warming. First, I use network analysis and a discrete choice model to estimate the changes in bilateral trade costs following implementation of BRI-related transportation infrastructure. Next, I simulate counterfactual trade costs assuming that the NSR is fully open for large container ships. Finally, I use a model with input-output linkages to estimate the welfare impact of the BRI, given that the NSR provides an alternative route that significantly reduces shipping costs.