Kazuatsu Shimizu

The Keynesian Case for Trade Protection: A Modern Treatment

With Keelan Beirne

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We revisit the Keynesian rationale for tariffs: when downward nominal wage rigidity creates inefficient employment losses, tariffs can serve as second-best instruments by expanding labor demand in affected sectors. To do so, we characterize optimal tariffs in a dynamic multisector economy with wage rigidities and a flexible exchange rate. Our contribution is twofold. First, we show analytically that tariffs can be counterproductive instruments: a broad tariff intervention reduces labor demand in the very sectors it is meant to protect, as currency appreciation depresses foreign import demand and discourages current spending. As a result, optimal policy calls for import subsidies across sectors when wage rigidity causes employment shortfalls across a sufficiently broad segment of the economy. Second, we undertake a quantitative evaluation and find that optimal interventions and the associated welfare gains remain modest in our U.S. application even when labor distortions are sizable. Optimal tariffs turn out to be small because of their limited effectiveness in shifting employment across sectors relative to the distortions they create.

Task-Based Discrimination

With Erik Hurst and Yona Rubinstein

American Economic Review, 114(6): 1723–1768, 2024.

Published article · Working paper

We develop a task-based model of occupational sorting to identify and quantify the effects of discrimination, racial skill gaps, and aggregate task prices on Black-White differences in labor market outcomes over time. At the heart of our framework is the idea that the size and nature of racial barriers faced by Black workers vary by the task requirements of each job. We introduce a task measure capturing interactions with coworkers and customers and show, through model estimation and supporting microdata, that the racial gap in this measure is a good proxy for direct labor market discrimination. Our estimated model attributes substantial convergence in jobs involving interpersonal contact to declining discrimination, while persistent racial barriers limit convergence in jobs requiring analytical tasks. These task-specific barriers also imply that race-neutral changes in task prices can widen racial wage gaps. Quantitatively, rising returns to analytical tasks widened the Black-White wage gap by approximately seven log points between 1980 and 2018. This force offset gains from reduced discrimination and narrower racial skill gaps, leaving the overall wage gap largely unchanged.

Romer or Ricardo?

With Chang-Tai Hsieh and Peter Klenow

Working paper, 2022; revision in progress.

Working paper

How do new varieties and quality improvements shape trade, growth, and the gains from foreign innovation? We develop a multicountry model combining new variety creation and international technology diffusion. On the theoretical front, we show that foreign growth through new variety creation raises home welfare by creating new sources of comparative advantage, while foreign growth through creative destruction can lower home welfare by eroding home’s comparative advantage and worsening its terms of trade. On the empirical front, we use product-level export and import dynamics to infer countries’ innovation patterns. The estimates suggest that the United States specializes in creating new varieties, while China relies more heavily on improving products developed abroad.

Trade Protection and Global Value Chains: The Good, the Bad, and the Optimal

With Arnaud Costinot

The Costs of Trade Wars: Theory and Evidence from the Great Depression

With Keelan Beirne

Did the trade war deepen the Great Depression? We argue that the gold standard amplified the adverse effects of tariffs on trading partners by tightening their monetary conditions. Using a shift-share design based on product-level tariff data, we show that countries exposed to higher foreign tariffs experienced lower output and higher unemployment, yet faced higher short-term interest rates and accompanying gold outflows. To explain these responses, we develop a Keynesian model of trade under the gold standard with downward nominal wage rigidity. In the model, unilateral tariffs ease domestic monetary conditions and stimulate employment at trading partners’ expense, while a global trade war depresses aggregate demand. Quantitative results from a model calibrated to 17 interwar economies suggest substantial employment gains in some countries and losses in others.