The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The recent era of globalization has witnessed growing cross-country trade integration as firms’ production chains have spread across the world, and with stock market returns becoming more correlated across countries. While research has predominantly focused on how financial integration impacts the propagation of shocks across international financial markets, trade also influences these cross-border spillovers. In particular, one important aspect, highlighted by the recent work of di Giovanni and Hale (2020), is how the global production network influences the transmission of U.S. monetary policy to world stock markets.
With each new Liberty Street Economics post, we aim to build familiarity with New York Fed research and policy analysis, and to share the expertise of our staff when it is relevant to the issues of the day. More than sixty economists contribute, and we tap coauthors from other central banks and academia as well, so the topics vary widely, covering the alphabet of “JEL Codes” in the economics literature plus numerous policy themes. Judging from our internet traffic, we have a core group that checks in to read nearly everything. Some posts break out to a wider public, prompted by news articles that cite our findings and even a mention in a presidential candidate’s tweet. Take a look at our top five most-read posts of 2019.
The imposition of Section 301 tariffs on about half of China’s exports to the United States has coincided with a fall in imports from China and gains for other countries. The U.S.-China trade conflict also appears to be accelerating an ongoing shift in foreign direct investment (FDI) from China to other emerging markets, particularly in Asia. Within the region, Vietnam is often cited as a clear beneficiary of these trends, a rising economy that could displace China, to some extent, in global supply chains. In this note, we examine the data and conclude that Vietnam is indeed gaining market share, but is too small to replace China anytime soon.
Mary Amiti, Stephen J. Redding, and David E. Weinstein
Tariffs on $200 billion of U.S. imports from China subject to earlier 10 percent levies increased to 25 percent beginning May 10, 2019, after a breakdown in trade negotiations. In this post, we consider the cost of these higher tariffs to the typical U.S. household.
The United States imposed new import tariffs on about $283 billion of U.S. imports in 2018, with rates ranging between 10 percent and 50 percent. In this post, we estimate the effect of these tariffs on the prices paid by U.S. producers and consumers. We find that the higher import tariffs had immediate impacts on U.S. domestic prices. Our results suggest that the aggregate consumer price index (CPI) is 0.3 percent higher than it would have been without the tariffs.
This week, we published our August surveys of regional manufacturers and service firms. Our Supplemental Survey Report, released this morning, reveals how these businesses view the effects of recent trade policy on their costs, prices, sales, and profits. The results suggest that recent tariffs are raising both input costs and selling prices for local businesses, and these effects appear to be more widespread for manufacturers than for service firms.
Mary Amiti, Mi Dai, Robert C. Feenstra, and John Romalis
Import tariffs are on the rise in the United States, with a long list of new tariffs imposed in the last few months—25 percent on steel imports, 10 percent on aluminum, and 25 percent on $50 billion of goods from China—and possibly more to come. One of the objectives of these new tariffs is to reduce the U.S. trade deficit, which stood at $568.4 billion in 2017 (2.9 percent of GDP). The fact that the United States imports far more than it exports is viewed by some as unfair, so the idea is to try to reduce the amount that the nation imports from the rest of the world. While more costly imports are likely to reduce the quantity and value of imports into the United States, the story does not stop there, because we cannot presume that the value of exports will remain unchanged. In this post, we argue that U.S. exports will also fall, not only because of other countries’ retaliatory tariffs on U.S. exports, but also because the costs for U.S. firms producing goods for export will rise and make U.S. exports less competitive on the world market. The end result is likely to be lower imports and lower exports, with little or no improvement in the trade deficit.
President Trump announced a new tariff of 25 percent on steel imports and 10 percent on aluminum imports on March 8, 2018. One objective of these tariffs is to protect jobs in the U.S. steel industry. They were introduced under a rarely used 1962 Act, which allows the government to impose trade barriers for national security reasons. Although the tariffs were initially to apply to all trading partners, Canada and Mexico are currently exempt subject to NAFTA negotiations, and implementation of the tariffs for the European Union, Argentina, Australia, and Brazil has been paused. South Korea has received a permanent exemption from the steel tariffs and will instead be subject to a quota of 70 percent of its current average steel exports to the United States. In this post, we consider how the steel tariffs could affect U.S. trade and employment. We focus on steel since the steel industry employs about three times as many workers as the aluminum industry, although qualitatively our conclusions apply to both. We argue that the new tariffs are likely to lead to a net loss in U.S. employment, at least in the short to medium run.
Mexico runs a trade surplus with the United States owing to oil exports and cross-border supply chains, with imported U.S. components assembled in Mexico and then exported back to the United States. At the same time, Mexico runs a large trade deficit with Asia, the result of a surge of imports from that region over the past two decades. From Mexico’s perspective, this growing deficit with Asia has worked to offset an increasing trade surplus with the United States. More recently, the country’s merchandise balance suffered a substantial deterioration with the collapse of petroleum prices in late 2014. The balance has subsequently staged a modest recovery, as Mexico’s demand for Asian goods in 2016 cooled while the surplus with the United States (excluding petroleum trade) continues to trend higher. These developments have helped Mexico reduce its need to borrow more from the world to make up for lost petroleum export revenues.
Mary Amiti, Caroline L. Freund, and Tyler Bodine-Smith
Supply chains have become increasingly interlinked across the U.S.-Mexico border. The North American Free Trade Agreement (NAFTA), allowing tariff-free commerce between the United States, Canada, and Mexico, has facilitated this integration. Some critics of NAFTA are concerned about the bilateral trade deficit and have proposed stricter rules of origin (ROO), which would make it more cumbersome for firms to access the zero tariff rates they are entitled to with NAFTA. We argue that measures that make it costlier for U.S. firms to import will also hurt U.S. exports because much of U.S.-Mexican trade is part of global supply chains.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
Economic Research Tracker
Liberty Street Economics is now available on the iPhone® and iPad® and can be customized by economic research topic or economist.
We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:
Please be brief: Comments are limited to 1500 characters.
Please be quick: Comments submitted after COB on Friday will not be published until Monday morning.
Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.
Please be on-topic and patient: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post. We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will not be posted.
The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.