Event Recap: Trade Reform, Exchange Rates, and Economic History

International trade facilitates the exchange of goods across borders and plays a central role in economic development. Classical economists have long argued that economies benefit from engaging with one another, but the period between World War I and World War II saw an increase in trade restrictions and protectionism around the world. Since then, trade policy has continued to play a significant role in shaping both aggregate welfare and its distribution within an economy. The recent resurgence of protectionism has once again brought attention to the motivations behind trade policy and its broader economic consequences.

Designing and evaluating trade policy is far from straightforward. While a country can determine its own trade policies, their ultimate effects depend crucially on how other economies respond. The same policy may generate very different outcomes depending on a country’s position in the global market. At the same time, whether a trade policy gains support depends not only on its impact on overall welfare, but also on how its benefits and costs are distributed across groups. For example, although free trade can improve aggregate efficiency, if its gains are concentrated among a small segment of the population, it may ultimately give rise to protectionist pressures.

Against the backdrop of rapid shifts in trade policy, the EGC hosted this mini-conference to showcase the latest research in international trade and economic development. The 2026 Kuznets Mini-Conference, “Trade Reform, Exchange Rates, and Economic History,” featured a series of sessions examining trade policy from multiple perspectives. The presentations spanned macroeconomic and microeconomic approaches, as well as historical analyses. Together, they offered new insights from recent and ongoing research on the causes and consequences of trade policy.

David Atkin (Massachusetts Institute of Technology) presented his paper, “Trade Barriers and Market Power: Evidence from Argentina's Discretionary Import Restrictions.” He shows that market power is prevalent in international trade and plays a key role in shaping the effects of trade policy. Using detailed data on discretionary import restrictions in Argentina between 2013 and 2015, Atkin finds that larger importers are more likely to exercise market power, while those trading with richer countries are less likely to do so. He further demonstrates that tighter import restrictions increased the prices paid by importers, a result that runs counter to what one would expect under competitive price-setting behavior.

Devaki Ghose (World Bank) presented her paper, “Trade Policy and Access to Intermediate Inputs: Quantifying the Welfare Costs of a Fertilizer Shortage.” She shows that import restrictions limiting access to key intermediate inputs can have substantial and uneven welfare consequences across regions. Focusing on Sri Lanka’s unexpected fertilizer import ban in May 2021, the paper highlights the importance of a general equilibrium approach in assessing policy impacts. While the ban directly reduced crop output, it also triggered broader adjustments in prices and wages across the economy, which partially offset the negative effects of the policy.

Réka Juhász (University of British Columbia) presented her paper, “Industrial Policy in the Global Semiconductor Sector.” She highlights that policies implemented in a single country can generate important cross-border externalities. The research examines recent industrial policies in the global semiconductor sector, where production is vertically integrated across multiple countries. Using a combination of historical analysis, natural language processing, and a model-based approach, she shows that government support has been crucial for the sector’s growth. However, cross-border technology transfers, through FDI, business and research collaborations, and technology licensing, can substantially amplify the effectiveness of such subsidies. Without access to knowledge spillovers from other countries, China, despite providing large subsidies, has achieved limited success.

Jacopo Timini (Banco de España) presented his paper, “The Economic Consequences of Geopolitical Fragmentation: Evidence from the Cold War.” Using new data compiled from East German statistical yearbooks and Soviet foreign trade statistical reviews, he shows how, beyond traditional determinants of trade costs such as geographic distance, political tensions can also create substantial barriers to trade. Focusing on trade between the Eastern and Western blocs during the Cold War, the paper finds that these politically driven barriers were significant and only gradually diminished in the 1990s.

Jesús Fernández-Villaverde (University of Pennsylvania) presented "How Globalization Unravels: A Ricardian Model of Endogenous Trade Policy," which provides a theoretical foundation for the rise of protectionism in the United States. He shows that while international trade increases aggregate welfare, its gains are distributed unevenly across individuals. These distributional shocks reshape political support among voters, sustaining protectionist policies as welfare becomes increasingly concentrated among a small group. Calibrated to U.S.–China sectoral data from 1991 to 2019, the model accounts for both rising inequality and declining support for globalization.

Lydia Cox (University of Wisconsin) presented her paper, “The Macroeconomic Effects of Tariff Policy.” When studying the macroeconomic effects of trade policy, a common approach is to aggregate tariffs, which can vary across industries. This paper points out that the way tariffs are aggregated plays a crucial role in empirical analysis. In particular, a widely used measure, the ad valorem equivalent tariff, depends largely on the composition of trade. As a result, even when tariff rates remain unchanged, shifts in trade composition can generate substantial variation in the estimated aggregate tariff. The paper proposes two alternative approaches to aggregating tariffs that address this limitation of the conventional method.

Diana Van Patten (Yale University) presented her paper, “De Minimis as a Constraint on Local Retail Market Power.” She shows that the effects of removing de minimis import exemptions depend critically on local market structure. The paper focuses on Costa Rica, where the de minimis rule granted individuals two tax-free import allowances per year for non-commercial items valued below $500 each. It finds that eliminating this exemption led to price increases in regions where retailers have market power, but had more limited effects in more competitive markets. Before the policy change, richer regions made greater use of the de minimis provision, yet these regions also tended to have more competitive retail markets. As a result, the burden of the policy change fell disproportionately on poorer regions.

Understanding the Link Between Trade Policy and Exchange Rates

The Kuznets Memorial Lecture by Douglas Irwin the prior evening began with a broad overview of how trade policy has evolved over the past several centuries. Across the world, many developing countries have relaxed trade restrictions between the 1980s and 1990s, and become more integrated into global markets. These changes are often understood as being driven by industrial policy objectives or lobbying by special interest groups.

Irwin highlighted an important but often overlooked link between trade policy and exchange rates, both key tools for managing foreign exchange reserves. Historically, maintaining fixed exchange rate regimes often went hand in hand with the use of trade restrictions to preserve reserves. Conversely, as countries moved away from fixed exchange rate systems, they were better able to gradually liberalize trade policies. Irwin argued this understudied driver of trade policy warrants further exploration.

Irwin also emphasized the role of ideas in shaping policy change. Looking at past waves of liberalization, he noted that in many countries, policymakers who played leading roles in promoting openness had strong ties to Yale, including one who was in the room. MIT professor Stephen Morris, who is visiting at Yale this semester, as a Yale graduate student helped the Ugandan government enact trade and currency reforms. Reflecting on him, and many others featured in his talk whose careers started at Yale, he encouraged students in the room to consider how the ideas they learn can inform real-world policy.