Trade Policy on a Buyer-Seller Network [Job Market Paper]
What are the effects of trade policy (i.e. tariffs) on prices and allocations? For the US-China trade war, an important aspect to measure the impact of tariffs on US consumption was to account how imported goods from China were replaced with goods imported from other countries (Nicita 2019, Bekkers and Schroeter 2020). In this paper, I argue that multinational production is a key driver of this substitution across origins. Therefore, I ask the question of how important is the network of connections between importing firms with multinational suppliers for the impact of trade policy on prices. I study the case of an antidumping duty imposed by Colombia on the imports of Chinese truck tires. This industry features both multinational and single-origin suppliers, which allows me to identify how different connections condition the substitution. Due to the policy, the imports of Chinese tires were replaced with tires from other countries and the expenditure on imported tires increased by 9%. Using a quantitative trade model, I find that under a counterfactual network without multinational suppliers, the increase in expenditure would have been 17% as a result of lower substitution. Therefore, a policy relevant lesson is that ignoring the network structure could lead to sizable biases for the prediction of the effects of tariffs on consumption.