Essays on International Trade

Abstract

This dissertation consists of three chapters.The first chapter studies the heterogeneous impact of the US-China trade war in the presence of global value chains. By building a two-stage, multi-country, multi-sector general equilibrium model, this chapter discusses how tariffs on imports affect domestic producers through linkages within and across industries. The model shows that tariffs on imports of Chinese upstream intermediate goods negatively affect US downstream exports, output and employment. The effects are strong in US industries that rely heavily on targeted Chinese intermediate goods. In addition, this paper quantifies the impacts of the two rounds of the trade war by comparing tariffs on intermediate goods and consumption goods. This paper estimates that the trade war contributes to US CPI by 0.09% in the first round and 0.22% in the second round. Finally, this chapter studies the welfare effects of the trade war, and estimates that in terms of aggregate real income, the trade war costs China 35.2$ billion, or 0.29% of GDP, and costs the United States 15.6$ billion, or 0.08% of GDP. The second chapter develops a two-country general equilibrium model to study the significant trade collapse in the US during the Great Recession. Compared with previous downturns, the trade reduction in 2008-2009 is exceptional in terms of its magnitude and rapidness. The recession in 2008-2009 is companied by a drastic credit crunch due to the global financial crisis. This paper aims to explain the uniqueness of 2008-2009 trade collapse by investigating the effect of a joint increasing financial friction in both the U.S. and its trading partners. The paper uses an International Real Business Cycle model with financial friction, where home and foreign countries trade intermediate inputs between each other. By simultaneously increasing the financial friction in both country, the model captures a negative correlation between financial friction and trade-to-GDP ratio. The third chapter introduces a literature review on the structural modeling of global value chains (GVCs). To understand how the production process is fragmented across the world, international economists explore different approaches to model global value chains. This chapter broadly divides the literature on the structural modeling of GVCs into two strands: the one that adopts the country-level approach and the one that adopts the firm-level approach. This chapter also discusses the advantage and drawback of each approach depending on the research questions and available data.