•  The Industry-Level Pattern of Dispute Activity in International Trade Relations

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What drives the escalation of disputes between countries? I investigate this general question in the empirical context of trade relations. My theoretical analysis focuses on the bargaining process that underlies (trade) disputes. It starts from the observation that higher stakes make parties more cost-tolerant. Building on this basic insight, I show how an option to create costs incentivizes high-stakes parties to deliberately drag both sides into mutually costly situations through escalation - in order to a) extract larger concessions, while b) simultaneously shortening the time to agreement. The empirical analysis leverages the fact that ‘stakes’ can be measured more easily in trade relations than in other issue areas: In particular, what is at stake in a trade dispute is not so much the observed value of trade (which is lower the higher the disputed trade barrier is), but the prospective change in trade that would materialize if the barrier was reduced as a result of the dispute. Using trade policy simulations to quantify this counterfactual change in trade, I test my argument against original industry-level data on U.S. trade enforcement actions. I find that degree of dispute escalation is dependent on the government with the lower stakes (because low-stakes parties are more willing to make concessions early on to avoid the costs of continued escalation). For the same reason, I also find that more highly escalated disputes tend to end in compromise agreements.

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•  Backward-Engineering Trade Protection: How to Measure Worldwide Industry-

Level Trade Barriers

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In this project, I present an approach to estimate worldwide industry-level non-tariff-barriers to trade (NTBs). The resulting data cover 160 countries and more than 200 industries. Expressed in terms of ad valorem tariff-equivalents, the data provide a comprehensive overview of the pattern of applied trade protection around the world. This is timely and important a) because NTBs make up the bulk of applied trade protection given that tariff-policies are increasingly regulated by international obligations; and b) because systematic and reliable data on NTBs is not available due to the complexity of existing regulations and the largely non-mandatory international reporting standards for these measures. Instead of relying on official data sources that may contain biased reporting, I therefore estimate the size of trade barriers from observable trade frictions. Specifically, I exploit observed trade frictions along with data on trade elasticities to identify the size of unobserved trade barriers. As a consequence of this indirect estimation method, my data are not affected by the self-selection and coverage problems prevalent in existing data sources on NTBs. My data are valuable for research in the areas of trade and trade policy and have broad implications for policy-making.

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•   A Text Mining Approach to Extract Trade Bargaining Histories from U.S. Trade Reports

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Although trade disputes are an important and much-studied phenomenon, existing data on dispute activity is sparse and subject to methodological problems. In particular, available data sources are heavily biased toward a small number of highly-visible cases. This raises selection concerns and makes it difficult to obtain a comprehensive understanding of dispute activity on a larger scale. In this paper, I present a purpose-built text mining procedure to collect data on trade disputes that addresses these concerns. These data are derived from the U.S. National Trade Estimate reports (NTEs). My data on trade disputes capture the trade bargaining and dispute activity between the United States and its 80 most important trade partners. For each bilateral relationship, the data cover interactions over up to 300 different products throughout the 1988–2015 period. This results in more than 500,000 observations on dispute events in a dyad-industry-year format. Because my data capture escalation and dispute behavior down to very low levels of intensity, they make it possible to reconstruct the detailed dispute histories of tens of thousands of product-level trade relations. This makes my data the most detailed resource on trade disputes currently available.

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•  Learning from Precedent: How Brexit Counteracts Nationalist Pressures in other

Countries (with Stefanie Walter)

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The liberal international order has recently come under increasing nationalist pressures, evidenced for example by a rise in nationalist demands to withdraw from international institutions. A growing literature examines the domestic economic, social, and political origins of the nationalist backlash against international institutions. However, less is known about the extent to which precedents of withdrawals of one country affect nationalist pressures for future withdrawals elsewhere. In this paper, we argue that initial withdrawal episodes provide new information about both the feasibility and desirability of withdrawals to nationalist elites in other countries. As a consequence, we expect nationalists abroad to be either encouraged or deterred to follow a similar path – depending on the success of these precedents. We explore this argument in the context of the British withdrawal from the European Union (Brexit), which arguably marks the most significant withdrawal from an international institution to date. Based on a quantitative text analyses of media reports in selected European countries, we show that nationalists in Europe significantly moderate their demands to leave the EU as the Brexit-drama unfolds, suggesting that new information generated by the Brexit process systematically affects nationalist pressures in other countries. Our results suggest that precedents of nationalist withdrawals may thus shape national politics well beyond the concerned countries themselves.

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This Paper is part of the ERC-Project DISINTEGRATION:

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•  Enforcement for Sale: Industry Lobbying and Trade Disputes

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What explains the intensity of trade disputes between exporting and importing countries? Existing research has identified various factors such as commercial policies, anticipated gains and losses from changes in these policies, the bilateral trade balance, political system and international institutional features, or election timing. In this paper, I propose an additional mechanism that has so far been overlooked – the relationship between an exporting industry’s lobbying expenditure and its export dependence. I argue that lobbying for trade enforcement leads to more robust market opening policies by the export industry’s government vis-a-vis an import partner only if the export industry has low export volumes (export dependence). The reason is that lower export volumes reduce the stakes under dispute between the governments involved and, therefore, also reduce the enforcing government’s anticipated costs from retaliation. These lower stakes thus makes it easier for the exporter’s government to maximize the ratio of lobbying rents to dispute costs (similar to the import-side protection for sale argument). I set up a structural model to test these theoretical predictions. The results confirm the conditional effect of lobbying expenditure on trade enforcement and show a strong overall fit across equations. These findings expand our understanding of the role of lobbying on export-related trade policies.
 

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•  Strategic Retaliation in the US-China Trade War: Which Industries are Targeted and

Why?

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This project adds to the literature that investigates the politics behind trade retaliation. Previous work has shown that trade retaliation is geographically targeted at policymakers' core domestic constituencies. I present an additional argument that focuses on the choice of industries rather than jurisdictions for retaliation. Specifically, I argue that retaliation is based on the same logic that underlies trade disputes - only in reverse. According to my previous work, trade disputes between two governments arise, when i) one government protects a domestic industry that would face stiff import-competition in the absence of protection, and ii) the other government's exporters would capture a large fraction of the market in terms of market share, if the protection was removed. Trade retaliation - in turn - should be concentrated in industries in which ii*) the opponent's exporters have a large market share so that closing off this market effectively inflicts pain, while i*) the industry selected for this import restriction benefits from protection anyways. An empirical investigation of the retaliation pattern apparent in the U.S.-China trade war supports this argument.

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•  Government Preferences, Trade Complementarity, and the Formation of PTAs

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This project examines how expectations about future changes in trade flows affect the likelihood that two countries form a preferential trade agreement (PTAs). I measure future changes in trade flows by means of a trade policy simulation and calculate the associated gains and losses for each party in terms of increased market access and import competition.  I hypothesize that pairs of countries with a balanced pattern of gains and losses across industries - and therefore complementary preference patterns - should find it easier to conclude PTA negotiations because they can exploit linkage strategies. My findings show that a complementary gain/loss constellation indeed facilitates the conclusion of a PTA. I also show that the depth of those PTAs that are concluded increases with greater complementarity among the involved countries. The project thereby contributes to the extant literature on the formation of PTAs by providing a novel bargaining-based explanation for PTA formation and design.

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