Exchange Rates and Industry Demands for Trade Protection

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. Although previous studies have shown that aggregate protectionist activity is positively related to the level of the r...

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Bibliographic Details
Published in:International organization 2014-04, Vol.68 (2), p.393-416
Main Authors: Broz, J. Lawrence, Werfel, Seth H.
Format: Article
Language:English
Subjects:
American dollar
China
Competition
Competitiveness
Conflict
Currencies
Currency
Currency appreciation
Economic theory
Exchange Rate
Exchange rates
Exports and Imports
Foreign Exchange
Foreign exchange rates
Imports
Industrial economics
Industrial market
Industrial products
Industry
International trade
Investigations
Manufacturing
Manufacturing industries
Metals
Monetary economics
Money
Peoples Republic of China
Petition
Political economy
Profits
Protectionism
Real exchange rates
Steel products
Studies
Trade Policy
Trade protections
U.S.A
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Summary: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. Although 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. Several industry-specific characteristics determine the protectionist response to exchange rate changes, 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 find that the marginal effect of currency appreciation on the number of industry-level antidumping petitions 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.
ISSN:0020-8183
1531-5088
DOI:10.1017/S002081831300043X