Exchange Rates and Industry Demands for Trade Protection

51 Pages Posted: 13 Jul 2012 Last revised: 22 Oct 2014

See all articles by J. Lawrence Broz

J. Lawrence Broz

University of California, San Diego (UCSD) - Department of Political Science; Center for Commerce and Diplomacy

Seth H. Werfel

Stanford University, Department of Political Science

Date Written: October 15, 2012

Abstract

The recent confrontation between China and the United States over currency policy illustrates a broader phenomenon: exchange-rate misalignments tend to spill over into trade policy. While previous studies have shown that aggregate protectionist activity is positively related to the level of the real effective exchange rate, we explore this relationship at the industry level. We argue that several industry-specific characteristics determine the protectionist response to changes in the exchange rate, including the degree of exchange-rate pass-through, the level of import penetration, and the share of imported intermediate inputs in total industry inputs. We evaluate our conditional arguments by estimating a negative binomial model of industry-level anti-dumping petitions and find that the marginal effect of currency appreciation on this measure of the demand for trade protection is positive and significant only for industries with high pass-through. Therefore, exchange rates appear to induce demands for trade barriers only in industries where competitiveness is directly harmed by currency appreciation.

Keywords: exchange rates, trade protection, anti-dumping, exchange rate pass-through

JEL Classification: F1, F31

Suggested Citation

Broz, J. Lawrence and Werfel, Seth H., Exchange Rates and Industry Demands for Trade Protection (October 15, 2012). International Organization 68(2), 393-416, Available at SSRN: https://ssrn.com/abstract=2105260

J. Lawrence Broz (Contact Author)

University of California, San Diego (UCSD) - Department of Political Science ( email )

9500 Gilman Drive
Code 0521
La Jolla, CA 92093-0521
United States

HOME PAGE: http://pages.ucsd.edu/~jlbroz/

Center for Commerce and Diplomacy ( email )

9500 Gilman Dr., 0519
La Jolla, CA 92093-0519
United States
8588225750 (Phone)

HOME PAGE: http://ccd.ucsd.edu/

Seth H. Werfel

Stanford University, Department of Political Science ( email )

Stanford, CA 94305
United States

HOME PAGE: http://www.sethwerfel.net

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