Industrial Fragmentation over Trade: The Role of Variation in Global Engagement

Abstract

Global economic integration has dramatically changed the US economy in ways both positive and negative over the past decades. The creation of the World Trade Organization and China's accession, along with the passage of free trade agreements with 20 countries, represent key policy developments but also sites for political contestation. Yet in nearly every instance, the United States has actively embraced greater economic openness, only episodically resorting to temporary industry-specific protectionism. 1 These moves toward ever greater integration have created manifestly positive effects for America's consumers and competitive firms and industries. But the costs of globalization for some US workers, industries, and regions have been steep. 2 In the wake of the 2016 presidential election and

Introduction: Bringing Institutions Back in the Study of Global Value Chains

“…And, perhaps most importantly, this body of work has been able to shed light on these transformations' far-reaching implications, both for foreign economic policymaking and for the international economic system at large. For instance, studies focusing on these changing patterns of production and distribution have shown how they contribute to systematically decreasing demands for protectionist policies (Baccini et al, 2017;Osgood, 2017), including during economic crises (Baccini and Kim, 2012;Gawande et al, 2015), thereby reducing political support for the imposition of anti-dumping measures (Eckhardt, 2015;Jensen et al, 2015), and promoting support for trade liberalization through Preferential Trade Agreements (PTAs) (Antr as and Staiger, 2012;Baldwin, 2011;Chase, 2003;Manger, 2009). In addition, these works have shed light on the new challenges and opportunities that firms and governments in developing countries face in this new global political economy (Barrientos et al, 2011;Gereffi and Frederick, 2010;Henderson et al, 2002;Phillips and Sakamoto, 2012).…”

Global Value Chains and Product Differentiation: Changing the Politics of Trade

“…By contrast, if there is no disagreement on PTAs among firms operating in an industry, we should see lobbying activities implemented by associations as a means to reduce the cost of lobbying. We thus expect a greater share of the lobbying on differentiated goods in the presence of GVCs to be carried out by firms rather than associations (for other studies explaining firms' decision to lobby alone or via associations, see for example Bombardini and Trebbi, 2012;Madeira, 2016;Osgood, 2017b). Our first hypothesis hence reads:…”

“…All these variables come from the US economic census. Moreover, to measure the amount of vertical foreign direct investment in an industry, which may affect lobbying behavior (Osgood 2017b), we include data on US-related party imports from the trade partner. Data come the Bureau of Economic Analysis.…”

Global Value Chains, Firm Preferences and the Design of Preferential Trade Agreements

“…A key finding of this literature is that less productive firms in a sector, which are incapable of exporting, oppose freer trade, while the most productive export‐oriented firms will typically prefer and lobby in favor of trade liberalization (Baccini et al., ; Madeira, ; Osgood, ; Weymouth and Broz, ). Yet, the heterogeneity of firms within the same sector goes beyond variation in (export) performance: firms also differ in their ability to engage in transnational production activities and to establish (global and/or regional) value chains (Osgood, ). Scholars have found that firms’ preferences depend to a significant extend on their ability to source (intermediates) from – and open production facilities overseas, as well as their integration and position within (regional or global) value chains (Curran, ; Eckhardt, ; Eckhardt and Poletti, ; Kim, ; Manger, ; Osgood, ; Yildirim et al., ).…”

“…Yet, the heterogeneity of firms within the same sector goes beyond variation in (export) performance: firms also differ in their ability to engage in transnational production activities and to establish (global and/or regional) value chains (Osgood, ). Scholars have found that firms’ preferences depend to a significant extend on their ability to source (intermediates) from – and open production facilities overseas, as well as their integration and position within (regional or global) value chains (Curran, ; Eckhardt, ; Eckhardt and Poletti, ; Kim, ; Manger, ; Osgood, ; Yildirim et al., ). That is, firms that heavily depend on foreign imports and production and/or are integrated in GVCs are most likely to have pro‐trade preferences.…”