A Decomposition of North American Trade Growth since NAFTA

Total U.S. trade with NAFTA partners has increased 78 percent in real terms since 1993-U.S. Mexico trade alone is up 141 percent-compared to a 43 percent increase in U.S. trade with the rest of the world. In this article we compare the nature of U.S. trade growth with Canada and Mexico to growth in U.S. trade with non NAFTA partners. We apply a simple decomposition of trade growth offered by Hummels and Klenow (2002) that provides insights into whether the United States is trading more of the same goods with NAFTA partners since 1993, or trading new products. The results provide evidence of both. A sizeable component of U.S. trade growth since 1993 can be explained by increases in the variety of products the U.S. imports from Mexico.NAFTA, International Trade

With no deterrent effect, the WTO dispute settlement crisis leaves US exporters exposed, especially US agriculture

The absence of a functioning Appellate Body at the World Trade Organization (WTO) leaves the dispute settlement mechanism weakened, and countries may be more likely to pursue their domestic policy goals in ways that restrict trade. Industries with relatively large export exposure like US agriculture will be particularly vulnerable in this new chaotic regime. The deterrent effect is more important than you think An integral part of the world trading system has been the WTO’s dispute settlement mechanism, which enables the WTO to enforce the rules the Members signed up for. Knowing you could get sued in the WTO for not following the rules tends to deter bad behavior. Citing need for reform, however, the US has blocked appointments to the body responsible for reviewing appeals and this has left the enforcement mechanism ineffective. Countries can still bring cases but there is no Appellate Body so the losing party can indefinitely delay the process by appealing the panel decision into a void, leaving the issue unsettled. The WTO is inherently a member driven organization and the dispute settlement function can be seen as a way for members to “check” each other on following the rules. When Members designed the Dispute Settlement Understanding, they were saying, “we commit to following the rules that we made for ourselves and if we don’t follow them, then we subject ourselves to retaliation.” Disputes inevitably arise from time to time, so having a place to sort things out before a trade war ensues is essential. The most important function of the dispute settlement mechanism might just be the deterrent effect—that is, policymakers and legislators are deterred from designing laws and policies that would violate the WTO rules. The deterrent effect has been hard to measure. Until now

How’s it going with the CPTPP?

There is no doubt that the United States is losing out on market access. But one of the original goals of the Trans-Pacific Partnership (TPP) was for a rules-based trading regime in the Pacific, namely rules not written by China. Thanks to Australia and Japan that seems to be happening even with the U.S. no longer at the helm. The Comprehensive and Progressive Trans-Pacific Partnership or the awkwardly nicknamed CPTPP is a Pacific trading bloc that consists of 11 countries, spanning the Pacific Rim, and includes Malaysia and Chile. The member countries represent 13% of world GDP. Once the UK officially joins, that figure jumps to 15% and the trade bloc will reach across the Atlantic. The United States was key in drafting the text of the agreement, starting with the George W. Bush administration, which was clear in its commitment to openness. As China shifted back to a more state-controlled economy, the Obama administration underscored a key U.S. goal: for the United States and not China to write the trade rules for Asia. Key goals included modernizing countries’ rules on ecommerce and digital trade and establishing rules on state-owned enterprises. The Obama administration carried the Trans-Pacific Partnership (TPP) through right up to the finish line. President Trump took a sharp turn and withdrew the United States from the agreement, claiming the agreement would not be good for the United States. Even though there are signs that the American public is open to more trade, the Biden administration and Congress have not pursued Trade Promotion Authority or any new trade deals that would lock in more market access abroad. The United States is no doubt missing out on market access in parts of the Pacific, especially agriculture. But thanks to quiet leadership by Australia and Japan a rules-based trading bloc in the Pacific not led by China is forming

A Discussion on Armington Trade Substitution Elasticities

Applied partial and general equilibrium models used to examine trade policy are almost universally sensitive to trade elasticities. Indeed, the Armington elasticity, the degree of substitution between domestic and imported goods, is a key behavioral parameter that drives the quantitative, and sometimes the qualitative, results that policymakers use. While standard transparent approaches to econometric estimation of these elasticities have been offered for the last 30 years, the estimates are viewed as too small by many trade economists. A few robust findings emerge from the econometric literature: (1) more disaggregate analyses find higher elasticities, (2) long-run estimates are higher than short-run estimates, and (3) time series analyses generally find lower elasticities relative to cross-sectional studies. We offer simulation results to illustrate the sensitivity of general equilibrium models to Armington elasticites. We conclude with remarks on the current challenges that remain in determining these important parameters.International Relations/Trade,

U.S. trade and investment restrictions: laudable but costly goals

U.S. Commerce Secretary Raimondo’s recent visit to China resulted in the announcement of a new “export control enforcement information exchange” between the United States and China. The laudable goal is to prevent China from using U.S. technology for military purposes against the United States or our allies. An information exchange may be a way to explain things to each other, but the fact remains that the export controls are indeed in place. China represents large revenue streams for three of the largest US chip producers—about 20% for Nvidia, 60% for Qualcomm, and 20-30% for Intel. If these U.S. companies cannot license or export to China, then their revenue streams will decrease, and that can translate into smaller margins, less hiring, and less spending on research and development. U.S. officials have been coordinating with other countries to ensure they participate actively in the strategy. Without coordination among key suppliers, China will circumvent U.S. export controls and access the U.S. technologies from another source. Export controls do not guarantee China won’t advance on its own. Last week Huawei released a smartphone that reportedly comes with 5G capabilities. Time will tell if these chips can be produced in high volume and at reasonable cost. The technology is still generations behind market leaders like Taiwan Semiconductor Manufacturing, but it would still represent a big step forward for China’s chipmakers. Last year Nicholas Burns, the U.S. ambassador to China, said that U.S.-China ties are at their lowest moment since 1972. Several U.S. officials have visited China in an effort to ease tensions. Secretary of Commerce Gina Raimondo is the fourth U.S. cabinet-level official to visit since June. Secretary of State Anthony Blinken, Secretary of Treasury Janet Yellen, and Climate Envoy John Kerry visited earlier this year. Efforts to ease tensions are welcome. Many U.S. businesses and agricultural producers that do business with China are worried that one of their largest markets is at risk

Handwringing over how to slice the pie when USTR should be focused on growing it

The U.S. International Trade Commission (ITC) recently released its report on the distributional effects of trade and trade policy on U.S. workers and “underrepresented and underserved communities.” The report catalogs a host of information gathered from a literature review and several roundtables on the adverse effects of U.S. manufacturing imports. But the report’s laser focus on manufacturing imports leaves a huge gap for readers interested in the distributional effects of trade. Manufacturing imports are an important part of trade, but they aren’t all of trade. Trade is imports and exports, goods and services, inputs and final goods. Trade is manufacturing, but it’s also agriculture and services. And you need to look at the full picture to understand the distributional impacts of trade and trade policy. While trade can mean wage or job loss for a worker with skills specific to an import-competing industry, it can mean other things, too. Trade can be the average American household’s budget going further at Christmastime. Trade can be importing the widgets that used to be made here and exporting new high-tech manufacturing goods that use those imported widgets. Trade is what has helped one mom from Lithonia, Georgia, start her own online accessory and consignment store. Trade is the lifeline for much of U.S. agriculture. But the ITC report focused narrowly on the workers competing with manufacturing imports. Per the U.S. Trade Representative’s request, the ITC held seven roundtables to gather information and each one was organized around a theme such as race, gender, and disability/age/education. Two of the roundtables were centered around a specific region—one on the agricultural community of the San Joaquin Valley in California, and another on the urban areas of Detroit. The ITC heard from workers across the country on a variety of topics not all explicitly connected to trade. Workers voiced frustrations about factory closings, the loss of manufacturing jobs in the United States, lack of childcare availability, barriers to relocation, challenges in gaining access to training or education, and disparate access to transportation, technology, internet connection, and health care, among other concerns. The report also included a literature review, and a few relatively strong threads emerged: First, greater import competition in manufacturing has been associated with a decline in the gender wage gap (not by rising wages among female workers, but rather largely driven by decline in the wages of men who switch out of import competing sectors). Second, higher skilled workers experienced little or no wage or income loss. Third, nonwhite workers fared worse than white workers following periods of sharp increases in manufacturing imports. Specifically, increased trade with Japan during the 1970s and 1980s led to a large drop in Black manufacturing employment, job losses associated with NAFTA were worse for nonwhite workers—particularly those without college degrees and in certain regions of the country—and Black workers moved from import-exposed manufacturing sectors to non-exposed sectors following increased trade with China during the 1990s and early 2000s

A Discussion on Armington Trade Substitution Elasticities

Applied partial and general equilibrium models used to examine trade policy are almost universally sensitive to trade elasticities. Indeed, the Armington elasticity, the degree of substitution between domestic and imported goods, is a key behavioral parameter that drives the quantitative, and sometimes the qualitative, results that policymakers use. While standard transparent approaches to econometric estimation of these elasticities have been offered for the last 30 years, the estimates are viewed as too small by many trade economists. A few robust findings emerge from the econometric literature: (1) more disaggregate analyses find higher elasticities, (2) long-run estimates are higher than short-run estimates, and (3) time series analyses generally find lower elasticities relative to cross-sectional studies. We offer simulation results to illustrate the sensitivity of general equilibrium models to Armington elasticites. We conclude with remarks on the current challenges that remain in determining these important parameters.Computable general equilibrium; International Trade; Armington; elasticity

An Estimation of U.S. Industry-Level Capital-Labor Substitution

A key parameter that determines the distributional impacts of a policy shift in general equilibrium models is the elasticity of substitution between capital and labor. Despite the importance of this parameter in applied modeling, its identification continues to pose a challenge. Given the structure of most growth models, we posit that the true relationship between capital and labor is likely to be close to Cobb- Douglas. Using a rich new data set from the Bureau of Economic Analysis, we estimate substitution elasticities for 28 industries, which cover the entire economy, and provide an indication of the long- and short-run estimates. We fail to reject the Cobb-Douglas specification in 20 of the 28 industries. These findings lend support to the Cobb-Douglas specification as a transparent starting point in simulation analysis.Econometric Methods; Time Series Models; Computable General Equilibrium Models

Effectiveness of integrating technology across the curriculum: classroom learning environments among middle-school students in the USA

A pretest–posttest design was used in evaluating the effectiveness of integrating technology across the core curriculum in terms of students’ perceptions of their classroom learning environment for a sample of 966 grade 6–8 students in Texas. Data analyses supported the factorial validity and reliability of the Technology-Rich Outcomes-Focused Learning Environment Inventory (TROFLEI) and revealed small and directionally-inconsistent changes in TROFLEI scale scores. Overall technology integration was neither advantageous nor disadvantageous