This paper investigates the sudden 2019 termination by the United States Generalized System of Preferences (GSP) of trade with India as a quasi-natural experiment. Given the re-election of Donald Trump and global concerns about the future of global trade, understanding the distributional consequences from past trade shocks can inform strategies to balance trade preferences with social equity.
The impact of the GSP termination is examined with a triple difference-in-differences specification that controls for both country- and product-level export changes to estimate the impact of the termination on India’s exports to the US deriving a shock index by sector. We then use the shock index as a treatment variable in a second model, utilising a difference-in-differences approach to measure the effect of the shock on monthly individual-level worker incomes and employment. Our findings suggest that the GSP termination had a considerable impact on Indian exports to the US: on average, exports of affected products dropped by 2 per cent in 2019, with exports of transportation manufacturing declining more than 20 per cent. These reduced trade flows from India to the US had knock-on economic implications for workers in India that we argue were likely driven by a strong countercyclical response from large firms that resorted to occupational restructuring, which saw companies prioritising professionals at the expense of day labourers. These findings have important implications for economic inequality as earners in the top income quintiles arguably capture the largest income gains and demonstrate the greatest employment resilience in the immediate aftermath of the termination.
Authors
