The Trade Effects of Safeguards: Evidence from Sweden

Abstract: The ongoing trade conflict has received much attention, and many politicians, as well as economists, wonder what the consequences will be. To shed some light on what the trade effects might be, we empirically analyse the trade effects of a very similar trade conflict. This paper examines the trade effects of the US safeguard of 2002 on Swedish steel exports. While the main focus of the analysis is to estimate the indirect trade effects, we do estimate the direct trade effects for comprehensiveness. In contrast to the previous literature, we estimate the trade effects of the imposition and the termination of the safeguard separately. By separating the effects, we aim to broaden the understanding of how safeguards affect trade, not only when they come into force. Using a gravity model framework in combination with probability models, we find evidence of a direct effect when the safeguard came into force and no effect of the termination. The analysis of the indirect trade effects shows that Swedish steel exports deflected to third countries when the safeguard was imposed. The estimation shows that Swedish steel exports increased by 42 – 69 percentage points in the wake of the safeguard and that the exports to third countries declined by approximately 126 percentage points when safeguard was terminated.