Self-Harming Trade Policy? Protectionism and Production Networks

Using monthly data on temporary trade barriers (TTBs), we estimate the dynamic employment effects of protectionism through vertical production linkages. First, exploiting procedural details of TTBs and high-frequency data, we identify movements in protectionism exogenous to economic fundamentals. We then use input-output tables to construct measures of protectionism affecting downstream producers. Finally, we estimate panel local projections using the identified trade-policy shocks. Protectionism has small and insignificant beneficial effects in protected industries. In contrast, the effects in downstream industries are negative, sizable, and significant. The employment decline follows an increase in intermediate-inputs and final goods prices.