{
  "title": "Trade Diversion Effects from Global Tensions—Higher Than We Think",
  "publication": "IMF Working Papers, November 10, 2023",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2023/11/10/trade-diversion-effects-from-global-tensions-higher-than-we-think-539680",
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  "summary": "The paper builds a unique industry-level dataset by combining Mexico’s nationally sourced inputoutput data (INEGI) with cross-country sources (WIOD, UN Comtrade).",
  "sections": [
    {
      "heading": "Research question and data",
      "content": "- Builds a unique industry-level dataset by combining Mexico’s nationally sourced input-output data (INEGI) with cross-country sources (WIOD, UN Comtrade).\n- Uses the dataset to exploit higher supply linkages across a larger number of industries than available in cross-country sources.\n- Focuses on estimating trade diversion effects on Mexico’s exports to the U.S. from two episodes: the U.S.-China trade tension in 2018 and the U.S. sanctions on Russia in 2014."
    },
    {
      "heading": "Methodology",
      "content": "- Empirical approaches used: difference-in-differences, local projections, and a few other empirical methodologies.\n- Compares results using nationally sourced input-output data versus those derived from cross-country sources."
    },
    {
      "heading": "Key findings",
      "content": "- For the U.S.-China 2018 episode, the paper finds higher trade diversion effects than estimates in the literature.\n- Output tariff plays an important role in driving trade diversion effects.\n- Some evidence of a positive impact through downstream tariffs.\n- Effects are stronger when nationally sourced input-output data (INEGI) is used compared to cross-country sources (WIOD, UN Comtrade).\n- Magnitude of trade diversion across industries does not depend on Mexico’s industry-level trade exposure to the U.S.\n- Magnitude instead depends on:\n  - the U.S. tariff changes on Chinese goods,\n  - the decrease in imports from China,\n  - product substitutability with Chinese products,\n  - and (weakly) on Mexico’s GVC integration.\n- For the U.S. sanctions on Russia in 2014 episode, the paper also finds positive trade diversion effects.\n- Overall conclusion: trade diversion effect might be higher than previously thought and proper accounting of dataset and supply linkages makes a difference."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- Subject: Exports, Imports, International trade, Revenue administration, Tariffs, Taxes, Trade tensions, Valuation, origin and classification\n- Keywords: aggregate trade diversion effect, change dummy, export share, Exports, Global, Imports, input-output datum, input-output linkages, magnitude of trade diversion, origin and classification, summary statistics of tariff exposure, Tariffs, trade diversion, trade diversion effect, Trade tensions, U.S.-China trade tensions, Valuation\n\nIMF Working Paper — Pages: 62; Volume: 2023; Issue: 234; Series: Working Paper No. 2023/234; DOI: https://doi.org/10.5089/9798400257421.001; Stock No: WPIEA2023234; ISBN: 9798400257421; ISSN: 1018-5941\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2023/11/10/trade-diversion-effects-from-global-tensions-higher-than-we-think-539680"
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    "Authors: Mengqi Wang, Swarnali A Hannan",
    "Published: November 10, 2023",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400257421.001",
    "Builds a unique industry-level dataset by combining Mexico’s nationally sourced input-output data (INEGI) with cross-country sources (WIOD, UN Comtrade).",
    "Uses the dataset to exploit higher supply linkages across a larger number of industries than available in cross-country sources.",
    "Focuses on estimating trade diversion effects on Mexico’s exports to the U.S. from two episodes: the U.S.-China trade tension in 2018 and the U.S. sanctions on Russia in 2014.",
    "Empirical approaches used: difference-in-differences, local projections, and a few other empirical methodologies.",
    "Compares results using nationally sourced input-output data versus those derived from cross-country sources.",
    "For the U.S.-China 2018 episode, the paper finds higher trade diversion effects than estimates in the literature.",
    "Output tariff plays an important role in driving trade diversion effects.",
    "Some evidence of a positive impact through downstream tariffs.",
    "Effects are stronger when nationally sourced input-output data (INEGI) is used compared to cross-country sources (WIOD, UN Comtrade).",
    "Magnitude of trade diversion across industries does not depend on Mexico’s industry-level trade exposure to the U.S.",
    "Magnitude instead depends on:",
    "For the U.S. sanctions on Russia in 2014 episode, the paper also finds positive trade diversion effects.",
    "Overall conclusion: trade diversion effect might be higher than previously thought and proper accounting of dataset and supply linkages makes a difference.",
    "Subject: Exports, Imports, International trade, Revenue administration, Tariffs, Taxes, Trade tensions, Valuation, origin and classification",
    "Keywords: aggregate trade diversion effect, change dummy, export share, Exports, Global, Imports, input-output datum, input-output linkages, magnitude of trade diversion, origin and classification, summary statistics of tariff exposure, Tariffs, trade diversion, trade diversion effect, Trade tensions, U.S.-China trade tensions, Valuation",
    "**Working Paper**"
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