Benjamin H. Liebman

The returns from rent-seeking: campaign contributions, firm subsidies and the Byrd Amendment

This paper examines Congressional support of the Byrd Amendment, a new antidumping law that directs the U.S. Customs Service to distribute collected duties to protected firms. A critical feature of the Byrd Amendment is that it produces a highly transparent measure of how much each firm is rewarded for its rent-seeking efforts to secure the bill’s passage, specifically the dollar value its Byrd disbursement. Therefore, this policy provides researchers with a unique setting in which to study the link between campaign contributions, Congressional behavior, and the subsequent financial returns to firms. Our empirical results show that campaign contributions from potential beneficiaries increased the likelihood that lawmakers would sponsor the Byrd Amendment. We also show that political contributions from the law’s beneficiaries increased with the rewards that they expected to receive, although not by as much as predicted by some political economy models of trade policy.

ITC Voting Behavior on Sunset Reviews

This paper is the first attempt to analyze ITC Commissioner voting behavior on sunset reviews of antidumping cases. Sunset determinations entail greater complexity than initial antidumping investigations because ITC commissioners must account for the impact of dumping protection as well as competitive forces on industry conditions. Empirical findings indicate that ITC voting is based on both sunset regulation and nonstatutory factors. Results reveal apparent biases against Chinese competitors and poorer nations generally, and favorable treatment toward U.S. steel producers and high-wage industries. There is also evidence of preferential treatment of industries located in states of Senate oversight committee members. JEL no. F13

Safeguards and Retaliatory Threats

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.

Self‐protection? Antidumping Duties, Collusion, and FDI*

It is well established that the threat of antidumping duties can help sustain collusion between a foreign firm and its domestic counterpart. However, when the foreign firm is a multinational with a subsidiary in the domestic country, that subsidiary can undermine efforts for protection, thereby diminishing the threat of duties that would otherwise sustain collusion. Accordingly, we show that the multinational may choose to submit to a tariff even under collusion since evidence indicates that duties are more difficult to remove than initiate. In this way, it is possible to obtain a greater degree of commitment, although it comes at a cost. Nevertheless, we prove that this can be a more profitable strategy than those previously explored. Thus, a parent firm may instruct its subsidiary to support duties against the parent. In fact, we find several cases where subsidiaries of multinationals have indeed filed for protection from their own parents.

Innovation through Protection: Does Safeguard Protection Increase Investment in Research and Development?

We perform the first empirical study of the impact of temporary trade protection on firm investment in R&D. Using a firm-level panel of the beneficiaries of safeguard protection between 1975 and 2005, we find support for predictions from the theoretical literature that temporary tariffs stimulate investment in R&D, but we find no evidence that this effect disappears as the termination of protection approaches, as predicted by some models. We also find little evidence that quotas impact firm investment in R&D, which we believe is because of the great deal in variation in how restrictive safeguard-related quota protection has been over the last 35 years.

Does the WTO government procurement agreement influence steel imports

Purpose Government procurement policies containing domestic content requirements have faced increasing attention, as more traditional forms of trade discrimination have declined in recent decades. The most important effort to reduce discriminatory government procurement policies is the plurilateral Agreement on Government Procurement (GPA), in which a subset of WTO countries has agreed to provide increased access to imports from fellow signatory countries. This paper focuses on the Buy American policy, which mandates domestic content for all US Federal government purchase above the micro-purchase level. The author tests whether steel imports from GPA and US Free Trade Agreement (FTA) partners, both of which receive preferential access to US federal procurements, increase as the value of federal construction contracts rise. Design/methodology/approach The author tracks federal construction contracts and seeks to determine whether there is a link between these contracts and construction grade steel imports from GPA and US FTA members. The author uses two-stage least squares to regress the import quantity of steel from GPA and US FTA countries on the value of US federal construction contracts. Imported and domestic steel prices as well as macroeconomic variables such as industrial production and non-residential construction are controlled for. A panel data set is used that includes three different construction-grade steel products and covers years 2004-2013. Findings The results indicate that increased federal construction contracts increase imports of construction-grade steel from GPA and FTA partners. This effect is relatively small, however, which may be due to the fact that federal construction is a small share of overall US construction. In general, the results suggest that the primary determinant of US import sourcing behavior is the business cycle as well as the price of steel. Nevertheless, the findings indicate that the preferences provided by the GPA and FTAs do have some impact on where US construction firms source their steel. Originality/value Previous research has studied the effect of the WTO’s GPA on foreign access to federal construction and other service contracts. This is the first study, however, to investigate whether these contracts impact the import sourcing behavior of the steel that is used in construction. Furthermore, while previous research measures the impact of GPA membership on the overall trade of goods and services, this paper is the first to link a particular industry with the inputs that are restricted by local content requirements such as the Buy American policy but freed up under the GPA. In general, previous research on the GPA has tried to capture the broad effect of GPA membership on trade, while this study focuses on the relationship between the GPA, federal procurement in a particular industry (construction) and import behavior of a key input, construction grade steel.

Trade Liberalisation and Capital Spending by US Manufacturers

This is the first paper to study the impact of long‐term tariff reductions on capital spending by US manufacturers. We investigate fluctuations in investment for approximately 400 different four‐digit industries during the period 1974–2005. Our results indicate that the dismantling of tariff and quota protection has had a stimulatory effect on US manufacturing investment, despite the relatively low average tariff rate that existed at the start of our sample period. However, our findings reveal that reductions in input tariffs rather than output tariffs were the source of this effect, suggesting that better access to foreign inputs rather than increased foreign competition at the output level served as the primary stimulus for increased US manufacturing investment.