Cristian Espinosa
@cespinosad
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PhD(c) in Economics @EconUCL 🎓 || International Trade Economist 📈 || From Chile, in the UK 🇨🇱 🇬🇧
United States
Joined November 2018
Excited to share my #JMP 🧵 ❓ What are the welfare costs of trade impediments during trade wars? ✅ JMP shows that these can be twice as high as those previously estimated in the literature on the US-China trade war 🌐: https://t.co/SnjIcoelKC
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Quite relevant to this discussion is the work by @cespinosad which I discuss here a bit in context of work with Carlo Schwarz in 2018/2019. In this context specifically I raise the possibility of this accelerating dedollarisation
This is an interesting paper that looks at the selection of goods that are subject to tariffs in an escalating trade war. The paper provides a stylized political economy model to study tariffs and retaliation game theoretically. The argument the paper makes is quite intuitive...
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At XXVI Workshop in Vigo, Spain in July, Cristian @cespinosad gave great presentation of this paper. He argues there are large selection biases in estimation of trade elasticities of goods targeted in trade wars. Controlling for biases, he finds trade wars have much higher costs.
Excited to share my #JMP 🧵 ❓ What are the welfare costs of trade impediments during trade wars? ✅ JMP shows that these can be twice as high as those previously estimated in the literature on the US-China trade war 🌐: https://t.co/SnjIcoelKC
#EconTwitter #EconJobMarket
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Yesterday I presented my JMP at the CRC Seminar series at @EconUniMannheim . It was an amazing experience and I received valuable feedback from the faculty!! Thank you 🙏 🙏
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A well-timed JMP on a political economy model of tariffs, coupled with estimation of trade elasticities using granular data on US-Canada "trade war". Cristian argues that welfare effects of tariffs might be larger than implied by the current literature 👇
Excited to share my #JMP 🧵 ❓ What are the welfare costs of trade impediments during trade wars? ✅ JMP shows that these can be twice as high as those previously estimated in the literature on the US-China trade war 🌐: https://t.co/SnjIcoelKC
#EconTwitter #EconJobMarket
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My student Cristian is on the market this year w. super interesting and topical paper on trade wars & welfare costs of trade impediments. Punchline: Discretionary tariffs are targeted, this needs to be accounted for when estimating trade elasticities => higher welfare costs.
Excited to share my #JMP 🧵 ❓ What are the welfare costs of trade impediments during trade wars? ✅ JMP shows that these can be twice as high as those previously estimated in the literature on the US-China trade war 🌐: https://t.co/SnjIcoelKC
#EconTwitter #EconJobMarket
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n/n Thanks a lot for reading! You can find the paper here: https://t.co/4BlzEVDwpz For more information about me, visit my website:
cristianespinosa.com
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12/n Using Trump tariffs in the US and the results estimated in this paper, the average demand elasticity lies between 2.5 and 5.2. This implies that average welfare losses in the US could double, potentially reaching $22 billion.
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11/n Since trade policy design involves selecting goods with elasticities at the extremes of the distribution, it is not possible to point-identify the average demand elasticity. However, it can be bounded using the two instruments predicted by the model.
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10/n Using this as an identification strategy, I show that the demand elasticity is 5.2 and the supply elasticity is zero. This implies that tariff pass-through is complete to consumer prices, meaning the entire effect of the tariff is borne by consumers.
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9/n As Canada matched the tariff rates but targeted goods in sectors different from those protected in the US, the idiosyncratic shocks between the protected sectors and those targeted by Canada are orthogonal to each other.
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8/n Additionally, World Trade Organization (WTO) rules constrain retaliatory responses to match the tariff rates imposed by the trade partner, while allowing discretion in the selection of targeted goods.
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7/n The identification strategy requires retaliatory tariffs to be orthogonal to shocks specific to the Canadian economy. Since retaliation is a response to tariffs imposed by the US, it is unlikely to be correlated with Canada’s own shocks.
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6/n Canada retaliated against the US by targeting goods with higher demand elasticity. Using administrative data on imports and tariffs at a highly disaggregated level, I estimate trade elasticities that are twice as high as those in the US.
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5/n I use these predictions to estimate trade elasticities, employing tariffs as instruments to identify demand and supply elasticities. Trump’s protectionist tariffs in the US, which targeted goods with low demand elasticities, help explain the results in these papers.
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4/n Governments driven by revenue motives impose tariffs on goods with low demand elasticity. The respondent country retaliates by targeting goods with high demand elasticity to maximize economic harm and pressure the trade partner to withdraw tariffs.
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3/n I develop a political economy model of trade wars, including a selection mechanism for goods subject to tariffs. The model predicts which goods are more likely to be targeted during trade wars, which I use as a novel identification strategy to estimate trade elasticities.
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2/n Welfare costs depend on two key trade elasticities: the price elasticity of import demand and the inverse price elasticity of export supply. Recent studies on the Trade War suggest that these elasticities are modest, leading to relatively low welfare costs.
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Should we worry about impact of looming trade war? Cristian's JMP says "yes." He develops polit. econ. model: Predicts selection of goods subj. to tariffs during trade wars. Using its predictions, he estimates trade elasticities, finds high welfare costs. https://t.co/pXlaaGqgQL
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