Trade Imbalances and the Rise of Protectionism

36 Pages Posted: 11 Feb 2021

See all articles by Samuel Delpeuch

Samuel Delpeuch

SciencesPo

Etienne Fize

Sciences Po Department of Economics

Philippe Martin

Sciences Po

Date Written: January 1, 2021

Abstract

We investigate the role of trade imbalances in the rise of protectionism in the past 10 years. Bilateral as well as multilateral trade imbalances are robust predictors of protectionist attacks. This result is partly but not entirely driven by the US and the Trump years. We also find that countries that experience a bilateral real exchange rate appreciation launch more protectionist attacks. The role of trade imbalances in the rise of protectionism is confirmed when we use fiscal policies as instrumental variables for trade imbalances. Countries with more expansionary fiscal policies react to the ensuing trade imbalance by a more protectionist trade policy. The role of trade imbalances in the rise of protectionism is quantitatively important: in the G20, a one standard deviation increase in the bilateral and multilateral trade deficits of a country leads respectively to a 7% and 17% rise of protectionist attacks by this country.

JEL Classification: F13, F14, F41

Suggested Citation

Delpeuch, Samuel and Fize, Etienne and Martin, Philippe, Trade Imbalances and the Rise of Protectionism (January 1, 2021). Available at SSRN: https://ssrn.com/abstract=3783968

Samuel Delpeuch (Contact Author)

SciencesPo ( email )

Rue de l'Université 13
Paris
France

Etienne Fize

Sciences Po Department of Economics ( email )

28, rue des Saints peres
Paris, 75007
France

Philippe Martin

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

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