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Exchange Rates and Industry Demands for Trade Protection

Published online by Cambridge University Press:  08 April 2014

J. Lawrence Broz  and
Seth H. Werfel
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Abstract

The recent confrontation between China and the United States over currency policy illustrates a broader phenomenon: exchange-rate misalignments tend to spill over into trade policy. Although previous studies have shown that aggregate protectionist activity is positively related to the level of the real effective exchange rate, we explore this relationship at the industry level. Several industry-specific characteristics determine the protectionist response to exchange rate changes, including the degree of exchange-rate pass-through, the level of import penetration, and the share of imported intermediate inputs in total industry inputs. We find that the marginal effect of currency appreciation on the number of industry-level antidumping petitions is positive and significant only for industries with high pass-through. Therefore, exchange rates appear to induce demands for trade barriers only in industries where competitiveness is directly harmed by currency appreciation.

Type
Research Article
Information
International Organization , Volume 68 , Issue 2 , Spring 2014 , pp. 393 - 416
Copyright
Copyright © The IO Foundation 2014 

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