Trade Diversion and the Initiation Effect: A Case Study of U.S. Trade Remedies in Agriculture

Abstract

This paper estimates the impact of U.S. trade remedy (TR) actions on agricultural trade from 1990 to 2014. Most previous studies of the effects of TR actions have left out agricultural products. We use a four-country oligopolistic trade model to study the impact of TR duties on imports from non-named countries, and we improve on methodological issues present in earlier studies. Our empirical results show that TR investigations benefit non-named foreign exporters and U.S. imports from non-named countries increase even before the implementation of a TR duty. The extent of trade diversion is positively related to the size of the duty. Moreover, we find evidence of an initiation effect revealed by a significant increase in imports from non-named countries that did not previously trade the relevant product with the United States. The considerable extent of trade diversion in agriculture provides robust evidence for leakage effects of TR laws which has a detrimental impact on their protective effect.