Visiting Speaker: Agustin Gutierrez, University of Wisconsin-Madison
Presentation Title: "Multinational Production and Trade Policy" joint with Sebastian Heise, Nicolo Rizzoti, and Felix Tintelnot
Abstract:
Multinational enterprises dominate international trade, yet much of the literature on optimal trade policy has overlooked their significance. Using Census data, we show that in response to the 2018–2019 U.S. import tariffs on China, arms’-length trade declined more sharply than related-party trade, and import prices fell within ongoing arms’-length and related-party importer-exporter relationships. Theoretically, we show that multinational production shapes the aggregate trade elasticity via the substitution of labor within multinational enterprises across different countries of production. When markets are competitive, and abstracting from entry costs to become a multinational enterprise, we obtain a neutrality result for optimal tariffs: unilaterally optimal second-best tariffs are uniform across sectors and countries, despite variation in multinational activity. Finally, we explore how imperfect competition and transfer pricing affect the optimal tariff level.
Hosts: Heitor Pellegrina & Cesar Sosa-Padilla