Aircraft Dispute, Wine, and the US–EU Trade War: Implications for US Consumers and Wine Suppliers

Abstract

This paper estimates changes in demand for imported wines by source country and resulting welfare effects due to Section 301 tariffs imposed on certain European wines in October 2019. A two-stage expenditure allocation scheme is used to estimate the import demand for red, white, and other wines in the first stage, and source-differentiated red wine and white wine demand in the second stage. From derived price elasticities measuring first and second stage interactions, welfare measures are simulated capturing effects of the new tariffs on both taxed and non-taxed exporters as well as the US importers of red and white wine.

Wine: The punching bag in trade retaliation

“…Our study shares similarities with Raimondi and Olper (2011), who utilize a gravity framework to investigate the trade-creating and trade-diverting effects of tariff liberalization for a broad assortment of food and agricultural items, including wine (though measured at a higher level of product aggregation than our analysis). Most recently, Zhang et al (2021) investigate the impacts of US tariffs on European wine exports enacted under the US-EU trade dispute; however, their demand-based analysis focuses solely on impacts on US consumers.…”

Trade war fallout: Exploring the altered landscape of US wooden furniture imports

“…For the analysis, we assumed that tariff changes are fully transmitted to import prices. Thus, the projections can be viewed as an upper bound (Muhammad & Jones, 2021; Zhang et al, 2021). Note that $$n$$ includes all imports disaggregated by product category and exporting country and $${\eta }_{{ij}}$$ is the unconditional (and uncompensated) price elasticity defined according to Equation ().…”

“…. Using these terms, the unconditional expenditure, compensated price, and uncompensated price elasticities can be expressed as follows (Edgerton, 1997;Zhang et al, 2021):…”

“…Matsuda (2005) notes, however, that this generalized model is more than the composite of popular demand systems, but a demand model in its own right. Thus, it is not uncommon for authors to use the generalized model for analysis when no specific functional form stands out as optimal (Zhang et al, 2021).…”

“…The generalized model allowed for specification tests to determine which of the functional forms best fit the data. Following Zhang et al (2021), we estimated demand in two stages. First, we estimated total import demand differentiated by the three product categories.…”