How Trade Bashing Tipped the Scales in Trump's Favor

The electoral college system projected the views of Industrial Midwest states onto the national stage
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Hostility to free trade exploded during the 2016 presidential election campaign. With President-elect Donald Trump having threatened to scrap trade deals in the works and re-open deals already agreed, some new research examines how trade came to get this recent black eye and, in the case of the Trans-Pacific Partnership, what's at stake.

Cullen Hendrix, a nonresident fellow at the Washington's Peterson Institute for International Economics, concludes that the protectionist surge in the U.S. doesn't reflect a big change in public opinion or an anti-trade attitude among young voters. A separate paper from the Obama Administration's Council of Economic Advisers takes a crack at quantifying some of the damage that could result if Trump dumps TPP.

This week's research wrap also looks at the threat of investor herding in the bond market and, as we enter the season of giving, whether gifts from a charity induce more donations. Check this column each Tuesday for a summary of new and interesting studies.

Free trade, not so unpopular

Despite all the rhetoric, polling data repeatedly show most Americans view free trade and free trade agreements favorably. Since 2013, in fact, trade has been viewed more positively than during the economic expansion of the 1990s. Strikingly, Hendrix, of the PIIE, cites figures showing a positive attitude toward free trade peaks at age 18 and bottoms out in the mid-70s. Those attitudes shifted downward slightly during the recent election campaign, but a majority remained supportive.

Absent a real shift in public opinion, Hendrix argues that a delayed reaction to the "China shock" -- the widespread loss of manufacturing jobs due to China's entry into the World Trade Organization -- and the peculiarities of the U.S. electoral system combined to make the issue a force during the campaign. He points out that while free trade enjoys majority support in the U.S. it was viewed favorably by a majority in just one of 11 states identified as election "battlegrounds." The electoral college system thereby projected the views on trade in states like Michigan, Ohio and Pennsylvania -- "former industrial powerhouses that were staggered by deindustrialization well before the recent China shock" -- onto the national stage. 

Read more in this Peterson Institute policy brief.

Protectionism in the 2016 Election: Causes and Consequences, Truths and Fictions
Published November 2016
Available at the Peterson website

A White House Warning

A paper from the CEA moves from the causes of the anti-trade phenomenon to the potential consequences. To make their, albeit partisan, point, the authors focus solely on Japan and estimate not only the damage of losing opportunities presented by TPP, but also what might happen should Asian countries move ahead with a regional trade agreement that excludes the U.S.

They identify 35 goods-producing industries selling a combined $5.3 billion in goods exported to Japan would face an erosion of their market access relative to Chinese competitors. Under the Regional Comprehensive Economic Partnership, a trade pact in the works involving Japan, China and several other Asian economies, would cut tariffs for Chinese goods headed for Japan, typically by 5 percent and in many cases by 10 percent.

Industries and Jobs at Risk if the Trans-Pacific Partnership Does Not Pass
Published November 2016
Available on the CEA website

Investor herding

After cracking down on risk-taking by big banks, financial regulators have worried about asset managers and how they might contribute to financial crises. A paper by Fang Cai, Song Han, Dan Li and Yi Li, economists at the Federal Reserve Board, looks for evidence that bond fund managers behave like a herd, thereby potentially creating or amplifying market panics. They find that institutional herding is much higher in the corporate bond market, particularly in non-investment grade bonds, than in equity markets. Sell herding, the authors find, was also more distortive to prices than buy herding, particularly for high-yield bonds, small bonds and illiquid bonds.

Institutional Herding and Its Price Impact: Evidence from the Corporate Bond Market
Published November 2016
Available on the Fed Board website

Quid pro quo

Charitable donors really want the swag. That's the finding in a paper by Catherine Eckel, Jonathan Meer and David Herberich published by the National Bureau of Economic Research that asks whether givers respond to offers of gifts from the charities they support. The answer is, yes, if the gift is nice enough.

Donors gave more when offered high-quality gifts than when they are presented with lower-quality gifts or none at all. Even when given a choice that could maximize the value of their donation to the charity, "donors overwhelmingly prefer to receive the gift when offered the option to decline it," the authors found. Unfortunately for the charities, the cost of the gift and shipping outweighed, on average, the extra giving, yielding a loss of nearly $3 per solicitation.

It's Not the Thought That Counts: A Field Experiment on Gift Exchange and Giving at a Public University
Published November 2016
Available at the NBER website

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