Geographic Locations, Corporate Lobbying and Trade Remedy: Evidence from the US

• In Event: Firms, Lobbying, Tariffs, and Policy Outcomes

Abstract

In this paper, I investigate how domestic corporate political activities and geographic locations of firms affect the level of protectionism in the face of bilateral trade agreements of the U.S. In this essay, I explain the level of protections for firms from the perspective of demand-side policymaking. According to the traditional trade theory, import-competing firms are harmed by trade liberalization because free trade increases domestic market competitions. They thus want their governments to impose high tariffs on imported products. On the contrary, exporting firms support trade liberalization because they prefer to have access to foreign markets in exchange for opening up the domestic market. Overall, optimal levels of trade liberalization and protection is determined by the relative political power and competitions among these two groups of industries. Unlike the conventional approach, I argue that geographic locations of firms are important explanatory factors that help us understand the level of protectionism and importance of geographic locations of firms.
To provide support for my argument, I collect an original dataset. From a list of publicly traded manufacturing and agricultural firms, I match it to the Trade Adjustment Assistant (TAA) database at the Department of Labor, Chad Bown’s database of antidumping and countervailing duties, and the lobbying data from the Political Actions Committee (PAC). Based on places of business, I further incorporate county-level information on the changes in the incumbent party vote share in the previous two presidential elections, along with other controls such as population, GDP, and unemployment rates. From the sources, I construct a firm-year dataset and conduct a series of two-stage Heckman selection models. From these selection models, the main finding of this paper is that U.S. governments are highly likely to provide protection for firms that are located in politically critical counties and the level of protection is influenced by firms’ lobbying activities. More specifically, when incumbent party vote share decreases in the previous two presidential elections, firms located in those countries are more likely to receive protection in terms of antidumping and countervailing tariffs from the government.

Author

• Jeheung Ryu, Kookmin University