Safeguards and Retaliatory Threats

Abstract

This is the first empirical article to analyze the response of shareholders to the threat of retaliatory tariffs authorized by the World Trade Organization (WTO). We use event study methodology to gauge the impact of European Union (EU) retaliatory threats stemming from the 2002 imposition of U.S. steel safeguards. Results indicate that the U.S. stock returns of firms slated for WTO-authorized tariffs reacted negatively to the announcements, signaling an increased likelihood of retaliation. Shareholders also generally responded positively to the early cancellation of the safeguards, which removed the risk of retaliation. Industry-level analysis indicates that producers of apparel, tobacco, and transportation equipment were particularly affected by the threat of retaliatory tariffs. Second-stage estimates suggest that retaliatory threats have a more negative impact on firms with a higher export share to the EU, greater profit growth, and low research-and-development intensity. (c) 2008 by The University of Chicago. All rights reserved..

The heterogeneous impact of Brexit: Early indications from the FTSE

“…As for market capitalization, in all specifications excepting the longest event window we find a significantly positive effect suggesting that a 10% increase in the firm's size would result in a 0.08% larger CAR. 28 This is consistent with Hypothesis 4, albeit it indicates that the magnitude of the firm size effect is small. Similarly, although we find a significantly negative effect from the number of affiliates in line with Hypothesis 5, the estimated magnitude is small, with the coefficient in column (1) indicating that a 10% increase in the number of affiliates would me a CAR that is 0.12% lower.…”

Do announcements of WTO dispute resolution cases matter? Evidence from the rare earth elements market

“…Our paper contributes to the growing literature on the economic implications of dispute resolution cases brought to the WTO. The literature thus far has focused mainly on the stock price reactions of affected companies in a classical event study setting (see Liebman, 2006;Liebman and Tomlin, 2007;Desai and Hines Jr., 2008;Liebman and Tomlin, 2008;and Liebman and Tomlin, 2015). However, we choose a different approach, and use the commencement of the WTO dispute resolution case on March 13, 2012 as a natural experiment in order to highlight its effects from four different angles.…”

“…The WTO generally focuses on negotiating new agreements for reducing trade burdens among their member states. But it is also heavily involved in evaluating complaints and issuing sanctions in case of violations of agreements in place (see Liebman and Tomlin, 2008). However, besides the shareholder value effects for firms affected by the consequences of WTO disputes and its adjudicates, we know very little about how the WTO's actions affect the underlying markets (see, e.g., Lenway, Rehbein, and Starks, 1990;Liebman andTomlin, 2007, 2008;and Lenway, Morck, and Yeung, 1996, for research on shareholder behavior).…”

The WTO Secretariat and the Role of Economics in DSU Panels and Arbitrations

“…11 Nevertheless, and perhaps more in line with the central bank analogy, there is even evidence from papers such as Desai and Hines (2008) and Liebman and Tomlin (2008) When we combine the theory with evidence that panellists and arbitrators make rulings under DSU auspices that affect economic policy choices and economic outcomes, it may appear obvious to most economists that this legal process is about more than "just" the law. But this is not necessarily the accepted view of those involved either in the DSU process, the WTO Secretariat, or the Members themselves.…”