Globalization, International Trade and Spatial Economics - Brenda Samaniego (University of California - Santa Cruz)

Abstract: 

We evaluate the impact of the US-China trade war on firms and workers in Mexico, a country that was not directly involved in the trade war but is one of the largest trading partners of the US, and one for whom the US is the major export destination. We find that significant trade diversion to Mexico occurred in response to the trade war between the US and China, and that this trade diversion had a significant and positive impact on workers and firms in Mexico. Using quarterly product-level import data from the US, we document that for every 1% increase in tariffs levied against China by the US, trade from China fell by 3%. But, in response to these same tariffs levied against China, US trade from Canada and Mexico rose by approximately 1%. Consistent with these facts, we use administrative data for exporting firms in Mexico and find that the difference in bi-annual export growth was 0.3% higher for products affected by the US-China trade war. Using quarterly, establishment-level data we also find that a 1% increase in a firm’s exposure to the trade shock increases blue collar employment and reduces social security payments. These effects on labor demand are concentrated among outsourced workers. The reduction in social security payments is consistent with a decline in formal employment.