Trade policy in a “GVC World”: Multinational corporations and trade liberalization

Christina Anderer,Lisa Lechner,Andreas Dür

doi:10.1017/bap.2020.4

Abstract

AbstractThe globalization of production is changing the political economy of trade policymaking: Traditional supporters of free trade (exporters seeking market access in foreign countries) are joined by new actors (companies needing intermediates from abroad for their production processes) in their lobbying efforts for trade liberalization. Multinational corporations (MNCs) play a crucial role in this new alliance due to their strong involvement in international trade and endowment with resources that can be used to lobby policymakers. We derive an argument from these premises that leads to the expectation of variation in trade policy outcomes across industries depending on their degree of integration in a global network of multinational corporations. Disaggregated data on the level of tariffs and speed of tariff cuts in preferential trade agreements, international mergers and acquisitions at the firm level, and MNC imports of intermediates by sector allow us to test the argument. The findings support our theoretical expectations. The paper sheds light on the processes and outcomes of trade policymaking in a globalized economy by further developing an existing argument about GVCs and trade policy outcomes as well as expanding on it by adding data on international corporate connections.

Highlights

The globalization of production is changing the political economy of trade policymaking: Traditional supporters of free trade are joined by new actors in their lobbying efforts for trade liberalization
If a deal is made for market-seeking reasons, as opposed to a deal to integrate a step in a crosscountry production process, we do not expect the deal to have an impact on first-year tariff cuts
Our findings show that sectors with vertical investment, measured as mergers and acquisitions (M&As) deals in the past five years and trade in intermediates, show on average 3 percent higher tariff cuts than sectors with horizontal investments, measured as M&A deals in the past five years, but no trade in intermediates

Summary

Introduction

The globalization of production is changing the political economy of trade policymaking: Traditional supporters of free trade (exporters seeking market access in foreign countries) are joined by new actors (companies needing intermediates from abroad for their production processes) in their lobbying efforts for trade liberalization. If a deal is made for market-seeking reasons (horizontal investments, which means that country A wants market access in country B), as opposed to a deal to integrate a step in a crosscountry production process (vertical integration), we do not expect the deal to have an impact on first-year tariff cuts.

Results

Conclusion