Thread by @borusyak

📢 I’d like to share with #TradeTwitter a 🧵 on what @XJaravel and I have learned about the unequal effects of international trade through both cost-of-living and wages in the U.S.

For those of you who have seen my JMP, this is a much-revised draft

dropbox.com/s/eiygfth61vp4…

@XJaravel Let’s start with the effects on costs-of-living, which are understood less well

Who benefits more from lower prices of imports in the US?

A typical guess & prior estimates: poor consumers who buy more tradable goods, esp. from China

So trade could REDUCE (real) inequality

@XJaravel But has it actually been documented who buys imported products and benefit when they become cheaper?

Not much, and that’s what we do as accurately as we can!

We measure import shares of spending across income and education groups using several newly linked datasets

Why focus on import shares of spending?

They are sufficient statistics for this “expenditure channel”. Consumer group that buys more imports benefits more when import prices fall

(Terms and conditions [of our Prop. 1] apply: perfect competition, partial equilibrium, and more)

But how can we measure who buys imports?

👉 Consumption data don’t say which products are imported, or contain imported inputs (and how much)
👉 Trade data don’t say who the consumers are

We need both at once. For all products. With detailed product definitions. Ugh.

We build not 1 but 3 new datasets:

👉 Industry-level for all goods & services: CEX spending data matched to US Input-Output table
👉 Firm-level for supermarket products: Nielsen spending data + confidential Economic Censuses
👉 Brand-level for cars: CEX + stats on car imports

Key finding: All income groups have similar spending shares on imports!

True, the poor buy more Chinese supermarket products and the rich buy European cars

But, the poor also buy cars assembled in Mexico, the rich buy Chinese electronics, and all these differences are small

This contrasts with findings from parametric approaches, e.g. by Fajgelbaum-@akhandelwal8. But we reconcile the results!

Turns out the AIDS demand system mechanically implies higher import shares for the poor

Non-homothetic CES does better, but direct measurement is our choice

Okay, so there is no heterogeneity by income in consumer exposure to trade

But what about the labor market: aren’t trade wars class wars these days, with trade hurting the poor through 10 different channels?

We develop a new exposure-based approach to shed light on that, too

Idea: if you work in an industry that exports (directly or indirectly), demand for your labor goes⬆️ with more trade. In import competing industries, ⬇️. Etc.

We derive 5 sufficient statistics of worker labor market to exposure to trade in a quantitative model with both channels

We find that >99% of exposure variation is within income groups

After a trade liberalization, wage changes can be unequal if industry mobility is limited, generating winners & losers

But effects are not correlated w/initial wage!
✔️ Unequal effects
❌ No effects on inequality

Recap:
👉Consumer & worker exposure patterns are informative about the distributional effects of trade shocks
👉In the US, income groups have similar % of imports in spending
👉And similar avg labor market exposure
👉Trade can generate winners/losers without affecting inequality

Many more theoretical and empirical extensions in the paper, and comments are welcome!

dropbox.com/s/eiygfth61vp4…

Bonus plot: find the brand of your car if you have one!