Currency Misalignments and Industry Demands for Trade Protection

Event Date: 

Friday, May 15, 2015 - 12:00pm

Event Location: 

  • The Lane Room (Ellison 3824)
  • International Relations Speaker Series
  • PS 595 Event

It is well known that currency misalignments lead governments to raise trade barriers. Less well known is that the protectionist response to currency misalignments varies by industry.  I argue that industries with high exchange rate “pass through” (where exchange-rate changes are more fully transmitted to product prices) are more likely to be harmed by misalignments than industries with low pass-through.  Similarly, I argue that industries that rely on imported intermediate inputs and global supply chains are less likely to be harmed by misalignments than industries that source inputs domestically.  I evaluate these arguments with evidence from recent congressional legislation that would impose trade barriers on nations like China with misaligned currencies.  I find support for the claim that exchange rates have differential affects across industries: high pass-through industries explicitly supported the legislation while industries dependent on global supply chains took positions against it.  I also show that campaign contributions from supporting (opposing) industries correlate with the likelihood that a member of Congress voted yes (no) on the legislation.  Exchange rates appear to induce targeted trade barriers only in industries where competitiveness is unambiguously harmed by misalignments.

J. Lawrence Broz is Professor of Political Science at the University of California, San Diego. Professor Broz received his PhD in political science from the University of California, Los Angeles (1993) and has held faculty appointments at Harvard University (1993-2000) and New York University (2000-2001). He is the author of International Origins of the Federal Reserve System (1997) and co-author of two edited volumes on international political economy. His recent articles have appeared in a number of top journals, including the American Journal of Political Science and International Organization. His research focuses on the institutions of monetary and financial policy making; specifically, central banks and international financial institutions.

PS 595 Credit