Firm Connectivity and Demands for Trade Protection under Global Value Chains

• In Event: Poster Session: Trade and IPE

Abstract

Antidumping (AD) duty, a tariff imposed on imported goods that are believed to be sold below the home market price or the cost of production, has been one of the most widely used trade policies across countries to protect their industries from unfair foreign competition. Based on industry-based trade theories, much of the literature assumes that firms within each industry would demonstrate a united stance in petitioning their home government for protection via AD duties. However, I find that domestic firms in the United States rarely unite behind AD duty petitions. Many firms within the same industry remain silent, and some even publicly oppose these petitions, even though AD duties would protect every firm in the industry. I provide a firm-level theory that explains how a firm's "foreign sensitivity" and "product mix" lead to firm-level participation in AD duty petitions. Firms that buy or sell products more, thus sensitive to foreign firms, and firms that produce a wider variety of products, worry more about losing their foreign connections or face retaliation from foreign governments because of protective AD decisions at home. Thus, firms with a higher level of foreign sensitivity and broader product mix are less likely to participate in AD petitions. To test my arguments, I construct an original database that accounts for every US and foreign firm involved in US antidumping duty operations between 2006 and 2020. I then match this data with various firm-, industry-, and country-specific databases, as well as proprietary US customs data with millions of transaction records that identify US firms' business connections with foreign firms. The results contribute to a growing firm-based literature that explores the origins of firms' trade preferences under the spread of global value chains.

Author

• Kee Hyun Park, University of Maryland