Republican donations and retaliation: the determinants of the U.S. trade wars
Date
2021-01
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Abstract
This paper examines the determinants of the U.S. trade wars, using two models: an industry-level model to examine why the U.S. protected certain industries, and a country-level model to examine why other countries imposed higher tariffs on the U.S. Using Tobit regression to estimate both models, we test for several possible explanations, including import-competing industries lobbying for protection, high import demand elasticity creating a market power motive, and the mercantilist disavowal of import penetration and trade deficits. We find that tariff increases were imposed on industries with a larger percentage of campaign donations going to Republicans. Specifically, every percentage-point increase in industry donations to Republicans increases the mean tariff increase imposed by the US by 0.015 percentage point, implying that a percentage increase in Republic donations results in a 122-percent increase in the mean tariff increase imposed by the US. In the other countries, we find evidence for retaliation against the U.S.: the country’s average tariff imposed on the US increases by 2.58 percentage points for every percentage-point increase in the average national tariff imposed by the U.S., implying that a percentage increase in the mean tariff imposed by the US on its trading partners is associated with a 17.2-percent increase in the mean tariff imposed against the US by its trading partners.
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Trade wars, Tariffs, Trade