Different Types of Trade Shocks in an Upstream-Downstream PE Model

I present a partial equilibrium model of trade that links upstream and downstream industries. The model demonstrates that two types of upstream trade shocks – tariff changes and foreign productivity shocks – have similar effects on the upstream industry but can have very different effects on the downstream industry. I apply the model to 2020 data for the upstream rubber and plastic products industry and the downstream furniture industry, in simulations of the effects of hypothetical tariff reductions and foreign productivity shocks that increase U.S. imports from China.