The Influence of Firm Global Supply Chains and Foreign Currency Undervaluations on US Trade Disputes

We apply insights from “new, new” trade theory to explain a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). We propose that firms making vertical or resource-seeking investments abroad will be less likely to file AD petitions, and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, we argue, the increasing vertical FDI of US firms makes trade disputes far less likely. We use firm-level data to examine the universe of US manufacturing firms and find that AD filers generally conduct no intrafirm trade with filed-against countries. We also find that persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. In the context of currency undervaluation, we confirm the existing finding that undervaluation is associated with more AD filings. We also find, however, that high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. Our study highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.

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Explores the policy of currency undervaluation in Asian economies and considers the effects of currency misalignment on the global scale. Discusses the determinants of economic growth; currency valuation, savings, and the current account; measuring currency valuation; the yin and yang of investment; whether the real exchange rate is endogenous; Rashomon rules—U.S. dollar, Euro dollar …; currency valuation and growth; policy failures and growth miracles; mercantilism and miracles; institutions versus exchange rate policy; currency undervaluation—a time-tested policy for growth; economics of the yen and the renminbi; and changing times, changing views. Bhalla is Chairman of Oxus Investments.