Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism
Abstract: We examine the impacts of the 2018-2019 U.S. import tariff increases on U.S. export growth through the lens of supply chain linkages. Using 2016 confidentia firm-trade linked data, we document the implied incidence and scope of new import tariffs. Firms that eventually faced tariff increases on their imports accounted for 84% of all exports and they represent 65% of manufacturing employment. For all affected firms, the implied cost is $900 per worker in new duties. To estimate the effect on U.S. export growth, we construct product-level measures of import tariff exposure of U.S. exports from the underlying firm micro data. More exposed products experienced 2 percentage point lower growth relative to products with no exposure. The decline in exports is equivalent to an ad valorem tariff on U.S. exports of almost 2% for the typical product and almost 4% for products with higher than average exposure.
Keywords: Global supply chains; tariffs; trade war; U.S. exports
When is Bad News Good News? U.S. Monetary Policy, Macroeconomic News, and Financial Conditions in Emerging Markets
Abstract: Rises in U.S. interest rates are often thought to generate adverse spillovers to emerging market economies (EMEs). We show that what appears to be bad news for EMEs might actually be good news, or at least not-so-bad news, depending on the source of the rise in U.S. interest rates. We present evidence that higher U.S. interest rates stemming from stronger U.S. growth generate only modest spillovers, while those stemming from a more hawkish Fed policy stance or inflationary pressures can lead to significant tightening of EME financial conditions. Our identification of the sources of U.S. rate changes is based on high-frequency moves in U.S. Treasury yields and stock prices around FOMC announcements and U.S. employment report releases. We interpret positive comovements of stocks and interest rates around these events as growth shocks and negative comovements as monetary shocks, and estimate the effect of these shocks on emerging market asset prices. For economies with greater macroeconomic vulnerabilities, the difference between the impact of monetary and growth shocks is magnified. In fact, for EMEs with very low levels of vulnerability, a growth-driven rise in U.S. interest rates may even ease financial conditions in some markets.
Abstract: This paper examines how the growth of exchange-traded funds (ETFs) has affected the sensitivity of international capital flows to global financial conditions. Using data on individual emerging market funds worldwide, we employ a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. We find that the sensitivity of flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. We then show that our findings have macroeconomic implications. In countries where ETFs hold a larger share of the equity market, total cross-border equity flows and returns are significantly more sensitive to global financial conditions. Our results imply that the increasing role of ETFs as a channel for international capital flows has amplified the global financial cycle in emerging markets.
Keywords: exchange-traded funds; mutual funds; global financial cycle; global risk; push and pull factors; capital flows; emerging markets