Self-harming trade policy? Protectionism and production networks

Using monthly data on temporary trade barriers (TTBs), we estimate the dynamic em- ployment effects of protectionism through vertical production linkages. First, exploiting high- frequency data and TTB procedural details, we identify trade policy shocks exogenous to eco- nomic fundamentals. We then use input-output tables to construct measures of protectionism affecting downstream producers. Finally, we estimate panel local projections using the identi- fied trade-policy shocks. Protectionism has small and insignificant beneficial effects in protected industries. The effects in downstream industries are negative, sizable, and significant. The em- ployment decline follows an increase in intermediate-input and final goods prices, and a decline in stock market returns.