China, Currency Misalignments, and Industry Demands for Trade Protection in the United States
46 Pages Posted: 4 Sep 2014 Last revised: 20 Feb 2016
Date Written: February 19, 2016
It is well known that currency misalignments lead governments to raise trade barriers. Less well known is that the protectionist response to currency misalignments varies by industry. I argue that industries with high exchange rate pass-through (where exchange-rate changes are more fully transmitted to product prices) are more likely to seek trade protection during misalignments than industries with low pass-through. I also argue that industries with global supply chains are less likely to seek trade protection during misalignments than industries that source inputs domestically. I evaluate these arguments with evidence from a 2010 congressional proposal to impose trade barriers on nations like China that are perceived to engage in currency manipulation. I find support for the claim that exchange rates have differential affects across industries: high pass-through industries explicitly supported this proposal while industries dependent on global supply chains took positions against it. I also show that the location of supporting and opposing industries across congressional districts correlates with two types of congressional behaviors: cosponsoring and roll-call voting on the 2010 currency proposal. Exchange rates appear to induce pressures for targeted trade barriers only in industries where competitiveness is unambiguously harmed by misalignments.
Keywords: Currency manipulation, undervaulation, China, exchange rates
JEL Classification: F3, F31, F33, F36
Suggested Citation: Suggested Citation